Quick Study: Stock Market Plays Catch Up to REITs

In the latest edition of “Quick Study,” Brad Case, NAREIT’s senior vice president of research and industry information, provided an analysis of the REIT market’s performance in March and the first quarter of 2013.

The U.S. REIT market delivered solid returns in the first quarter of 2013, although it slightly underperformed the broader equity market, according to NAREIT data. REITs outperformed equities, however, on a 12-month basis ended March 28.

The FTSE NAREIT All REITs Index delivered a 9.1 percent total return in the first quarter, and the FTSE NAREIT All Equity REITs Index delivered a total return of 8.10 percent, compared to the S&P 500’s return of 10.6 percent. On a 12-month basis ended March 28, the FTSE NAREIT All REITs Index returned 18.7 percent and the FTSE NAREIT All Equity REITs Index delivered 17.11 percent, while the S&P 500’s return was roughly 14 percent.

Almost all segments of the U.S. REIT market delivered positive returns in the first quarter, with many providing double-digit returns. Mortgage REITs led the market with a 17.8 percent total return, fueled by the commercial financing segment’s 23.7 percent gain and the 16.6 percent return of the home financing segment.

Among major equity REIT sectors, timber returned 15.5 percent; health care’s return was 14.7 percent; lodging/resorts delivered 13.7 percent; and industrial returned 11.6 percent.

In a low interest-rate environment, REITs’ strong dividend yields continued to distinguish them from the broader equity market. The dividend yield of the FTSE NAREIT All REITs Index at March 28 was 4.1 percent, and the yield of the FTSE NAREIT All Equity REITs Index was 3.3 percent. The FTSE NAREIT Mortgage REITs Index yielded 10.9 percent, with the home financing segment yielding 11.8 percent and the commercial financing segment yielding 6.8 percent. By comparison, the dividend yield of the S&P 500 Index at March 28 was 2.2 percent.

REITs continued to raise a significant amount of capital from the public markets in the first quarter of the year: $22.6 billion, including $16.1 billion in equity. The amount outpaced the $19.0 billion (including $9.3 billion in equity) raised in the fourth quarter of 2012 and $21.2 billion (including $14.9 billion in equity) raised in last year’s first quarter.