FTSE Nareit All REITs Index Up 0.8% in December; 28.1% higher for 2019

The total returns of the FTSE Nareit All REITs Index in 2019 were at their highest annual level since 2006, as a lower interest rate environment and solid fundamentals provided broad support to the industry.

The FTSE Nareit All REITs Index rose 0.8% in December, while the S&P 500 gained 3.0% during the same period. For 2019, the FTSE Nareit All REITs Index gained 28.1% while the S&P 500 rose 31.5%. In 2006, REIT returns were 34.4% higher.

The total returns of the FTSE Nareit mREIT Index rose 3.6% in December and 21.3% for the year. The yield on the 10-year Treasury was 0.1% higher in December and 0.8 % lower for the year.

“The above average total return in 2019 should be viewed as a catch-up for several years of lackluster returns for the space, particularly in 2018,” said Matt Werner, portfolio manager at Chilton Capital Management.

Werner added that most equity REITs have spent the last few years upgrading portfolios that temporarily resulted in lower growth rates in earnings. “Going into 2020, REITs should see the reward for these efforts and also enjoy accretive acquisitions and lower blended interest expense on existing debt,” he noted.

Nareit Senior Vice President for Research and Economic Analysis Calvin Schnure sees the outlook for 2020 remaining favorable, with modest economic growth and few signs of recession on the horizon.

“Real estate markets enjoy low vacancy rates and a balance of new supply and growing demand, supporting rent growth and REIT earnings in the year ahead. Watch out, however, for rising vacancies or slowing rent growth,” Schnure said.

According to Werner, the trade deal with China, the 2020 general election, and near-term economic growth could change the outcome for the S&P 500 performance to the upside or downside. “However, we believe REIT performance will be somewhat insulated from these risks. In addition, the high relative dividend yield coupled with the visibility of dividend growth well into 2022 is an attractive attribute in a low interest rate environment,” he said.

Among the strongest performing REIT sectors of 2019, manufactured home REIT returns rose 49.1%, industrial REIT returns gained 48.7%, and data center REIT returns were up 44.2%.

Office REITs saw returns advance 31.4% in 2019, residential REIT returns moved 30.9% higher, health care REIT returns gained 21.2%, lodging REIT returns rose 15.7%, and retail REIT returns were 10.7% higher.