In the latest edition of Quick Study, Brad Case, NAREIT’s senior vice president for research and industry information, reviewed market gains in November and longer-term trends in the REIT sector.
The total returns on the FTSE NAREIT All REITs Index were 2.3 percent for November. While returns on the S&P 500 Index rose 2.7 percent last month, Case noted that REITs outperformed small and mid-sized companies.
For the year through Nov. 28, the FTSE NAREIT All REITs Index was up 25.8 percent, compared with a 14 percent gain for the S&P 500 Index.
Case stressed that the REIT market’s performance in November underscores a “long history of REIT outperformance relative to the broad stock market, so this is nothing very surprising.”
Health care REITs were among the strongest performers last month, up 31.5 percent for the first 11 months of the year. The total return for the residential REIT sector in 2014 was 37.6 percent as of Nov. 28. Case highlighted that gains in the apartment REIT segment continue to be fuelled by underlying demand coming from individuals moving out of shared living arrangements.
Mortgage REITs also had a strong performance in November, as returns on the FTSE NAREIT Mortgage REITs Index gained 2.2 percent. In fact, the only REIT sector that didn’t perform especially well in November was timber, Case said, although the sector has posted solid returns for the year as a whole totaling 6.4 percent.
Meanwhile, Case emphasized that REIT dividend yields remain at an average level of 3.4 percent for equity REITs, which is high relative to other assets. The dividend yields for mortgage REITs are more than 10 percent, he added.
Looking at 2014 more broadly, Case said the big story for the year has been the continued recovery from the economic downturn.
“We’ve seen slow but steady improvement in macroeconomic fundamentals, which, for REIT investors, increases the value of the properties and generally the stock prices of the REITs. It also increases the cash that’s available for REITs to distribute to their shareholders, so it increases both stock prices and income yields,” Case said.
Case also highlighted research on the long-term outperformance of the REIT market. A NAREIT-commissioned study by CEM Benchmarking Inc. reviewed data from more than 300 large U.S. pension funds and found that from 1998 to 2011, stock exchange-traded REITs outperformed every other asset class, including private equity, hedge funds and other forms of real estate investment.