01/04/2012 | by
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The total returns of listed U.S. equity REITs were approximately four times those of the broader stock market in 2011, the National Association of Real Estate Investment Trusts (NAREIT) reported today. NAREIT said that the total return of the FTSE NAREIT All Equity REITs Index was up 8.28 percent for the year and the FTSE NAREIT All REITs Index, which includes both equity and mortgage REITs, was up 7.28 percent, compared with a 2.11 percent gain for the S&P 500.

The more than 8 percent gain for equity REITs in 2011 came on top of a 27.95 percent gain in 2010 and a 27.99 percent increase in 2009 – years in which the S&P 500 gained 15.06 percent and 26.46 percent, respectively. Equity REITs also outperformed the S&P 500 for the past 1-, 3-, 10-, 15-, 20-, 25-, 30-, and 35-year periods, according to NAREIT.

Dividends Boost REIT Performance Advantage

Much of REITs' performance advantage has come from the stocks' dividend payouts, since almost all of a REIT's taxable income is paid to shareholders as dividends. The FTSE NAREIT All Equity REITs Index's 8.28 percent total return in 2011 included a share price return of 4.32 percent, and the FTSE NAREIT All REITs Index's 7.28 percent total return included a share-price return of 2.37 percent. The dividend yield of the FTSE NAREIT All Equity REITs Index at December 30, 2011, was 3.82 percent and the dividend yield of the FTSE NAREIT All REITs Index was 4.83 percent, compared to 2.22 percent for the S&P 500.

"The strong, continuing income stream from REITs is an important component of theappeal of REIT shares for investors," said NAREIT President and CEO Steven A. Wechsler. "REIT dividends boost an investment portfolio's performance in good times and help insulate it from downside shocks in turbulent market conditions," he said.

REITs Raise Record Amount of Capital

REITs raised a record amount of capital in the public markets in 2011, including a record amount of equity, positioning the industry to enter 2012 with the financial flexibility that comes from strong balance sheets.

REITs raised $51.3 billion in public equity and debt in 2011 – more than the $49 billion raised in the previous record year of 2006. Additionally, in spite of 2011's volatile stock market, $37.5 billion of the capital raised in the year was in public equity, compared with $22 billion in 2006 and $32.7 billion in 1997, the prior record year for REIT equity offerings.

REITs have used the equity they have raised to effectively manage their leverage. At September 30, 2011, the listed U.S. REIT industry's ratio of debt divided by total market capitalization stood at 41.6 percent, approximately its historical average, in spite of the market downturns of August and September 2011.

"Continuing access to the capital markets and disciplined management have helped create a REIT industry with its financial house in order," Wechsler said. "REITs are well prepared for both the challenges and opportunities that may arise in 2012. They are positioned to be strategic acquirers of properties from less well-capitalized private real estate owners, as they have been over the past two years."

Some REIT Sectors Deliver Double-Digit Total Returns

A number of REIT market sectors delivered double-digit gains in 2011. The Self-Storage sector led the overall REIT industry with a total return of 35.22 percent for the year. The Apartment sector also delivered strong performance with a 15.10 percent gain, fueled importantly by continuing uncertainty in the single-family housing market. The Health Care sector was up 13.63 percent, while the Retail sector was up 12.20 percent, driven by the performance of the Regional Malls segment, which was up 22.00 percent.

The Timber REIT sector gained 7.65 percent for the year, and the Diversified sector was up 2.82 percent.

Lagging sectors of the REIT market included Lodging/Resorts, down 14.31 percent; Industrial, down 5.16 percent; Mortgage REITs, down 2.42 percent; and Office, down 0.76 percent.

Americas Outperform Other Global Listed Property Markets

The Americas was the only segment of the global listed property market to deliver positive returns in 2011. On a dollar basis, the Americas sector of the FTSE EPRA/NAREIT Global Real Estate Index delivered a 3.99 percent total return for 2011, compared with negative total returns of 13.38 percent for the Europe sector; 18.20 percent for the Middle East/Africa sector and 19.74 percent for the Asia/Pacific sector.

For a link to the full report visit /sites/default/files/portals/0/PDF/NAREIT-2011-REIT-Market-Report.pdf.