U.S. REITs Continue To Reward Investors in First Quarter

The U.S. REIT market delivered solid returns in the first quarter of 2013, although it slightly underperformed the broader equity market, according to data from the National Association of Real Estate Investment Trusts (NAREIT). REITs outperformed equities, however, on a 12-month basis ending March 28.

The FTSE NAREIT All REITs Index, the broadest index of the U.S. REIT market, delivered a 9.11 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 10.61 percent. On a 12-month basis ending March 28, the FTSE NAREIT All REITs Index returned 18.73 percent and the FTSE NAREIT All Equity REITs Index delivered 17.11 percent, while the S&P 500’s return was 13.96 percent.

Mortgage REITs lead REIT market with 18 percent total return

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 17.84 percent total return, fueled by the commercial financing segment’s 23.71 percent gain and the 16.59 percent return of the home financing segment.

Among major equity REIT sectors, timber returned 15.47 percent; health care’s return was 14.67 percent; lodging/resorts delivered 13.71 percent; and industrial returned 11.59 percent.

Generating strong income in a low interest-rate environment

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 4.11 percent, and the yield of the FTSE NAREIT All Equity REITs Index was 3.31 percent. The FTSE NAREIT Mortgage REITs Index yielded 10.89 percent, with the home financing segment yielding 11.84 percent and the commercial financing segment yielding 6.80 percent. By comparison, the dividend yield of the S&P 500 Index at March 28 was 2.15 percent.

REITs raise capital from public markets to fund acquisitions and reduce debt 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.

NAREIT’s analysis indicates that REITs have used the capital they have raised both for acquisitions and to reduce balance sheet debt. At the start of this year’s first quarter, the debt ratio for equity REITs was 35.1 percent, near its historical low and down from 38.6 percent at the beginning of 2012’s first quarter.

“REITs continued to reward their shareholders with all the benefits of real estate investment in the first quarter of the year,” said NAREIT President and CEO Steven Wechsler, “including portfolio diversification, continuing income and competitive returns. They did so while also providing the advantages of liquidity and moderate leverage.”