U.S. REITs Continue to Outperform Broader Equity Market

The National Association of Real Estate Investment Trusts (NAREIT) is reporting that the total return of the FTSE NAREIT All Equity REITs Index was up 7.5% in the quarter, and the FTSE NAREIT All REITs Index was up 6.8% compared to 5.92% for the S&P 500. NAREIT said REITs delivered their first-quarter gains in spite of slightly negative returns in March. The FTSE NAREIT All Equity REITs Index was down 1.28% in the month, and the FTSE NAREIT All REITs Index was down 1.38%, while the S&P 500 was up 0.04%.  

Almost all sectors of the U.S. REIT market delivered strong returns in the first quarter of 2011, and three sectors provided double-digit returns. The Timber REIT sector was up 24.61% in the period, while the Industrial sector gained 11.17%, and Self-Storage REITs were up 11.03%.  

Among other major segments of the REIT market, Office REITs gained 7.61% in the quarter and Apartments were up 6.87%. The Retail sector was up 4.51%, led by the Regional Malls segment, which was up 6.3%.  

According to the news release, on a 12-month basis ended March 31, the total return of the FTSE NAREIT All Equity REITs Index was up 25.02% and the FTSE NAREIT All REITs Index was up 24.34%, significantly outpacing the S&P 500’s 15.65% gain in the period.  

The U.S. REIT industry’s gains in the first quarter came on top of near 28% gains in both 2010 and 2009 (see “REITs Enjoy Strong 2010 Performance“), years in which the S&P 500 gained approximately 15% and 26%, respectively. At the end of this year’s first quarter, equity REITs were up 205% from their market cycle trough in March 2009, but still remained 18% below their peak in February 2007. 

The equity market capitalization of the U.S. REIT industry stood at $429 billion at the end of the 2011 first quarter, up 10.28% from $389 billion at year-end 2010. Income-seeking investors also continued to benefit from REIT dividend yields. The yield of the FTSE NAREIT All REITs Index at the end of the first quarter was 4.2%, while the FTSE NAREIT All Equity REITs Index’s yield was 3.46%. By comparison, the dividend yield of the S&P 500 was 1.91%.  

The public equity and debt markets continued to provide REITs with a significant amount of fresh capital in the first quarter of 2011. REITs raised a combined $23.3 billion in 59 equity and debt offerings in the period. The amount raised put the industry on track to surpass the $47.5 billion in public equity and debt it raised in 2010, the second largest annual amount raised in the industry’s history after the $49 billion raised in the record year of 2006.  

REITs have used the capital they have raised to de-leverage, helping to reduce the industry’s debt ratio by more than one-third from its high of 66.3% at the end of February 2009 to 39.8% at year-end 2010, near its historical average. The strengthened balance sheets have also provided REITs with the financial firepower to become the commercial real estate industry’s most active acquirers of properties in the past year.