U.S. REITs significantly outperformed the broader equity market in the second quarter and first half of 2012, as well as over the past 12 months, according to the National Association of Real Estate Investment Trusts (NAREIT).
In the second quarter of the year, the total return of the FTSE NAREIT All REITs Index was up 4.55 percent, the FTSE NAREIT All Equity REITs Index was up 4 percent, and the FTSE NAREIT Mortgage REITs Index was up 8.53 percent, while the S&P 500 fell 2.75 percent
In the first half, the total return of the FTSE NAREIT All REITs Index was up 15.43 percent, the FTSE NAREIT All Equity REITs Index was up 14.91 percent, and the FTSE NAREIT Mortgage REITs Index was up 18.39 percent, compared to a 9.49 percent gain for the S&P 500.
On a 12-month basis ended June 30, REITs more than doubled the performance of the broad market. The FTSE NAREIT All REITs Index was up 12.65 percent, the FTSE NAREIT All Equity REITs Index was up 12.48 percent, and the FTSE NAREIT Mortgage REITs Index was up 10.94 percent for the 12-month period, while the S&P 500 was up 5.45 percent.
Retail Leads Sector Performance
All of the sectors of the REIT market, with the exception of apartments, produced double-digit total returns in the first half of 2012. Among the major equity REIT market sectors, retail outperformed with a total return of 21.15 percent for the first half, led by regional malls with a 22.71 percent total return.
Industrial REITs followed delivering an 18.98 percent return for the period. Office REITs returned 13.73 percent, apartments returned 9.49 percent and mortgage REITs delivered an 18.39 percent total return in the first half.
In the second quarter, the top performing sector was infrastructure with a 16.79 percent total return, followed by health care with a 10.21 percent return, and mortgage REITs, which returned 8.53 percent.
Among the major equity REIT market sectors, retail gained 5.75 percent in the quarter, office gained 2.76 percent, apartments rose 0.95 percent and industrial declined 3.75 percent.
REITs Offer Attractive Yields
REITs continued to offer solid dividend yields at the end of the first half, outpacing the dividend yield of the S&P 500. The dividend yield of the FTSE NAREIT All REITs Index was 4.20 percent, the yield of the FTSE NAREIT All Equity REITs Index was 3.29 percent and the FTSE NAREIT Mortgage REITs Index yielded 12.92 percent, led by home financing REITs with a dividend yield of 13.51 percent. By comparison, the S&P 500’s dividend yield at the end of the first half was 2.29 percent.
“The requirement that REITs pay out nearly all of their taxable income to their shareholders as dividends makes them attractive to investors as a strong generator of income in both up and down market environments,” said NAREIT Executive Vice President of Research and Investor Outreach Michael Grupe.
“Because real estate rents and values tend to increase in times of rising prices, REITs also appeal to investors who are concerned about hedging their portfolios against the potential of rising inflation,” he added.
Capital Raising Activity Remains Strong
REITs continued to actively raise capital in the public equity and debt markets in the first half of the year, putting them on track to match or surpass last year’s record for the annual amount of capital raised. REITs raised a total of $33.21 billion in the first half, including $22.36 billion in equity offerings and $10.85 billion in unsecured debt offerings.
By comparison, the U.S. REIT industry raised $51.28 billion in all of 2011, including $37.49 billion in equity and $13.79 billion in debt. REIT industry balance sheets also remained strong. The current overall debt ratio for equity REITs (debt as a percentage of total market capitalization) stands at 35.6 percent, based on the latest available data.
“The REIT industry today generally is well-capitalized with the financial strength to take advantage of strategic acquisition opportunities as they become available,” Grupe noted.