REITs Outperform Broader Stock Market in Third Quarter

Washington, DC, October 3 — REITs outperformed the broader stock market in the third quarter of 2019, according to Nareit. The FTSE Nareit All REITs Index , the broadest U.S. REIT index containing both equity and mortgage REITs, gained 7.24% on a total return basis in the third quarter and 27.37% in the first nine months of 2019, compared to the S&P 500’s respective gains of 1.70% and 20.55%.

The FTSE Nareit All Equity REITs Index, which includes 163 equity REITs, advanced 7.73% in the third quarter and 28.49% in the first three quarters of 2019, while the FTSE Nareit Mortgage REITs Index, which includes 36 home and commercial financing REITs, rose 2.09% and 12.15% respectively.

Strong Returns Across Market Segments

Thirteen equity REIT property segments delivered nine-month returns that exceeded the returns of the S&P 500, and seven exceed those of the FTSE Nareit All Equity REITs Index.

The data center segment outperformed all other property segments, with a total return of 48.54%. The manufactured homes sector followed with a 43.66% total return, and the single-family homes segment was the third-best performer with a 41.86% total return.

Other property segments whose total returns outpaced the FTSE Nareit All Equity REITs Index in the first nine months of 2019 were:

  • Industrial – 41.77%
  • Infrastructure – 37.30%
  • Apartments – 30.50%
  • Health Care – 29.01%

Among mREITs, commercial financing REITs led with a 25.67% total return for the first nine months, while home financing REITs delivered a 6.95% return.

“REITs continue to provide investors with highly competitive total returns, attractive dividend yields, and serve as a critical component of portfolio diversification, demonstrating why they should be a core allocation in all investment portfolios,” said John Worth, Nareit executive vice president of research and investor outreach. “REITs are viewed as a relatively safe sector during an economic downturn. This is primarily because rents which represent the majority of REIT income are a stable source of revenue and do not drop precipitously even in an economic downturn. While REITs are not immune to economic fluctuations – during a recession, occupancy rates are likely to fall and rent growth will slow – the multiyear leases in most sectors provide an important measure of stability. For investors, the fact that about half of REIT returns are in the form of dividends provides a steady stable source of returns and income.”

Income Investors Find Compelling Rewards in REITs

REITs once again offered income investors attractive dividend yields in the third quarter. The dividend yield of the FTSE Nareit All REITs Index at the end of the quarter was 3.93%, while the FTSE Nareit All Equity REITs Index dividend yield was 3.54%, and the FTSE Nareit Mortgage REITs Index was 10.22%. By comparison, the S&P 500 delivered a 1.98% dividend yield.

Among equity REITs, eight property segments delivered dividend yields greater than the yield of the FTSE Nareit All Equity REITs Index:

  • Specialty - 6.38%
  • Regional Malls – 6.22%
  • Lodging/Resorts – 5.72%
  • Diversified – 4.79%
  • Timber – 4.67%
  • Shopping Centers – 4.57%
  • Health Care – 4.53%
  • Free Standing Retail – 3.75%

REITs Maintain Solid Balance Sheets

The U.S. equity REIT industry has continued to maintain low leverage, with a debt to market assets ratio of 29.1%. In the first three quarters of 2019, publicly listed REITs raised a total of $84.56 billion in 192 equity and debt offerings , up from $38.417 billion in 100 equity and debt offerings during the same time last year. By the close of this year’s third quarter, REITs raised $32.26 billion in secondary offerings of common equity including ATM issuance, $3.02 billion in preferred shares, and $49.20 billion in unsecured debt.

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