11/02/2010 | By Matthew Bechard
The FTSE NAREIT All REIT Total Return Index climbed more than 4.5 percent in October, bringing REITs' year-to-date total returns up 23.9 percent in 2010.
REITs continued to outpace the broader market measures through the end of October. The S&P 500 was up 3.8 percent for the month. So far in 2010, the S&P 500 has gained 7.8 percent.
Brad Case, NAREIT's vice president for research and industry information, notes that the REIT market's performance in October was consistent with longer-term trends in REIT investment. In the last 10 years, REIT investors have seen average annual returns of 11.4 percent. Case points out that investors in the broader market haven't seen a gain on average during that same period.
Outperformance among industrial and lodging REITs helped drive the overall market in October. Industrial REITs' total returns climbed 11.9 percent for the month, while the lodging sector gained 9.6 percent. Retail REITs had the third-highest returns in October, up 5.9 percent for the month.
Case says the outsized returns of the industrial and lodging sectors reflect investors' optimism about operating fundamentals in the sectors. He attributes the strong performance of industrial REITs to boosts in trade and manufacturing activity. Meanwhile, growth in business and vacation travel is fueling the lodging sector, Case says.
Case also examines conditions in the mortgage REIT sector, maintaining that healthy dividends are serving to attract investors. Currently, mortgage REITs are offering dividend yields on the order of 14 percent.
"In this kind of environment, it's awfully difficult for investors to find strong dividend yield anywhere," he says.