U.S. REIT stocks outperformed the broader equity market for the fourth consecutive year in 2012, according to data from the National Association of Real Estate Investment Trusts (NAREIT) released on Jan. 8.
The FTSE NAREIT All REITs Index, which includes both equity and mortgage REITs, delivered a 20.14 percent total return for the year, and the FTSE NAREIT All Equity REITs Index returned 19.70 percent compared to the S&P 500’s 16 percent gain.
The FTSE NAREIT All Equity REITs Index’s 2012 gain came on top of total returns of 8.28 percent in 2011, 27.95 percent in 2010 and 27.99 percent in 2009. The S&P 500 returned 2.11 percent, 15.06 percent and 26.46 percent, respectively, in those years.
The total returns of the FTSE NAREIT All Equity REITs Index also exceeded those of the S&P 500 for the 3-, 5-, 10-, 15-, 20-, 25-, 30-, 35- and 40-year periods ended Dec. 31, 2012.
Timber Is Top-Performing Property Sector
Almost all sectors of the REIT market delivered double-digit returns for the year. Among equity REITs, the top-performing sector in 2012 was timber, with a 37.05 percent total return. Other high-performing equity REIT sectors were industrial, with a 31.28 percent total return, infrastructure, with a 29.91 percent return, and the retail sector, which delivered a 26.74 percent total return, led by the regional mall segment’s 28.21 percent return. The health care sector returned 20.35 percent for the year, and self-storage achieved a 19.94 percent return.
The FTSE NAREIT Mortgage REITs Index provided a 19.89 percent total return for 2012. The commercial financing sector’s total return was 42.98 percent, and the home financing sector returned 16.38 percent.
Equity REITs Provide 3.5 Percent Dividend Yield
REITs are required to pay out nearly all of their taxable income to shareholders as dividends annually, typically resulting in significant dividend yields for the stocks. The dividend yield of the FTSE NAREIT All REITs Index was 4.38 percent at December 31, and the dividend yield of the FTSE NAREIT All Equity REITs Index was 3.51 percent.
The FTSE NAREIT Mortgage REITs Index yielded 12.93 percent at year-end, with the home financing sector yielding 13.84 percent and the commercial financing sector yielding 8.29 percent. By comparison, the dividend yield of the S&P 500 at Dec. 31 was 2.22 percent.
“REITs have a strong track record of delivering income,” said NAREIT President and CEO Steven A. Wechsler. “It is an attribute that has become increasingly important in our continuing low-interest rate environment, especially for those who are preparing for or are in their retirement years.”
REITs Maintain Conservative Leverage
The U.S. REIT industry continued to maintain conservative balance sheets in 2012. The debt ratio of the FTSE NAREIT All Equity REITs Index at the end of the third quarter of last year was 33.80 percent, near its historical low. The listed REIT industry’s equity market capitalization at Dec. 31 was $603 billion, and the average daily trading volume of REIT shares in December was $4.2 billion.
“REITs are an important component of a well-constructed investment portfolio for investors from all walks of life,” Wechsler said. “They provide the income and potential for capital appreciation that characterizes real estate investment along with the advantages of moderate leverage and, in the case of listed REITs, complete liquidity. They also are a critical conduit that channels investment capital to support the growth of the real estate market and the broader economy.”