Broader US equity REIT indexes also took part in the rally, but to a lesser extent. The FTSE Nareit All Equity REITs Index—which includes the additional subsectors of Timber and Infrastructure—outperformed the Russell 3000 Index in May, but with an excess return of 0.78%.
If we take a closer look at excess returns at the subsector level, we can identify several key drivers of US equity REIT performance, both for the quarter-to-date and the month of May. The standout REITs subsector relative to the Russell 3000 for May was Lodging/Resorts, in part driven by idiosyncratic return related to an announcement of an acquisition. As shown below, positive excess performance went beyond that particular subsector, with nine out of the 16 REIT subsectors of the All Equity REITs Index outperforming the Russell 3000 Index.
The seven underperforming subsectors included Timber and Infrastructure, explaining why the Equity REITs Index—which does not include those subsectors—had higher returns than the All Equity REITs Index.
The positive outcomes for May built on April’s strong returns. Quarter-to-date, the All Equity REITs Index outperformed the Russell 3000 by 1.87%, and the Equity REITs Index did even better, posting an excess return over the Russell 3000 of 2.22%. Quarter-to-date, only three subsectors—Single Family Homes, Data Centers and Infrastructure—underperformed the broad US equity market.
The macroeconomic environment also provided some tailwinds for US equity REITs over this time period. The Federal Reserve held off raising interest rates (the Federal Funds target rate) in May, although market expectations are that June will see a rate increase. And the new tax law incorporates some changes that are said to be favorable for REIT investors.
To help investors manage and understand US equity REIT exposures, FTSE Russell offers the FTSE Nareit US Real Estate Index Series, which is a comprehensive family of REIT-focused indexes that span the commercial real estate industry. The series provides market participants with a range of tools to benchmark and analyze exposure to real estate across the US economy at both a broad industry-wide level and on a sector-by-sector basis.
 Chattapadhyay, M., “REITs outperform broader market in May,” 2018, Zack.com, June 4.
 Tankersley, J., “Fed holds rates steady and says on track for June increase,” 2018, New York Times, May 2.
 Lake, R., “Tax reform is a windfall for REIT investors,” 2018, US News: Investing/Real Estate Investments, April 13.
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