01/15/2014 | By Ron Kuykendall
Listed REITs raised a total of $76.96 billion of equity and debt in 2013, an amount that surpassed 2012’s prior record of $73.33 billion, according to the National Association of Real Estate Investment Trusts (NAREIT). The 2013 number included $46.22 billion of equity and $30.74 billion of debt.
A total of $5.71 billion was raised in 19 initial public offerings (IPOs) during the year – the largest amount raised in the largest number of IPOs since 2004, when $8.27 billion was raised in 29 IPOs. The offerings included 13 equity REITs spanning a range of property sectors and six mortgage REITs representing both the home financing and commercial financing sectors. The IPOs were approximately equally divided between the first and second halves of the year, and the bulk of the funds were raised in the second half.
Industry Grows and Remains Well-Capitalized
The overall size of the listed REIT industry grew in 2013. The industry’s market capitalization increased to $670 billion at the end of 2013, up from $603 billion at the end of 2012, and the number of companies in the FTSE NAREIT All REITs Index grew to 203, up from 172 companies at the end of 2012.
The industry also continued to maintain a moderate level of leverage. The debt ratio of the FTSE NAREIT All REITs Index at the end of the 2013 was 49.2 percent, approximately flat with its 48.8 percent level at the end of 2012. The FTSE NAREIT All Equity REITs Index’s debt ratio at the end of 2013 was 34.1 percent, compared to 33.8 percent at the end of the prior year. The debt ratios of both indexes are near their historical lows.
Returns of listed U.S. REIT stocks underperformed the broader equity market in 2013 for the first time in five years, according to NAREIT.
The FTSE NAREIT All REITs Index, the broadest index of the listed U.S. REIT market, gained 3.21 percent on a total return basis in 2013. The FTSE NAREIT All Equity REITs Index delivered a 2.86 percent total return, and the total return of the FTSE NAREIT Mortgage REITs Index fell 1.96 percent in the year, NAREIT reported. The S&P 500 delivered a 32.39 percent total return for the year.
For income investors, REITs continued to provide competitive yields. The dividend yield of the FTSE NAREIT All REITs Index at the end of 2013 was 4.43 percent, the yield of the FTSE NAREIT All Equity REITs Index was 3.91 percent, and the FTSE NAREIT Mortgage REITs Index yielded 10.31 percent. By comparison, the dividend yield of the S&P 500 at the end of 2013 was 1.98 percent.
Real Estate is Strategic, Long-Term Investment
“Real estate is a strategic more than a tactical investment, and real estate investors have historically been rewarded for a long-term orientation,” said NAREIT president and CEO Steven A. Wechsler.
From 1992 – essentially the beginning of the modern REIT industry – through the end of last year, the FTSE NAREIT All REITs Index produced a 10.33 percent average annual total return compared to 9.19 percent for the S&P 500, according to NAREIT. A $10,000 investment in REITs at the beginning of that period would have grown to $86,965 at the close of 2013, compared to $68,128 for the same investment in the S&P 500 – a 26 percent greater payout.
“Additionally,” Wechsler noted, “real estate, as a distinct asset class, provides diversification to an investment portfolio, potentially reducing its overall volatility. Portfolio diversification hinges on different assets performing differently from time to time.” At the end of last year, the correlation of the FTSE NAREIT All REITs Index with the S&P 500 was 65 percent.
Some REIT Market Sectors Delivered Strong Growth
Some sectors of the REIT market delivered double-digit returns in 2013. The commercial financing segment of the mortgage REIT sector delivered a 41.77 percent total return for the year. The lodging/resorts sector produced a 27.18 percent total return, and manufactured homes returned 10.46 percent.
Most REIT market sectors produced single-digit returns for the year. The self-storage sector gained 9.49 percent; timber REITs increased 7.86 percent; the industrial sector gained 7.40 percent; free-standing retail rose 7.29 percent; and the office sector increased 5.57 percent.