REITs outperform the market in Q2

By Staff | July 16, 2012 | Last updated on July 16, 2012
2 min read

U.S. REITs significantly outperformed the broader equity market in the first half of 2012, says the National Association of Real Estate Investment Trusts (NAREIT).

The total return of the FTSE NAREIT All REITs Index was up 4.55% in Q2 and 15.43% for the year overall; the FTSE NAREIT All Equity REITs Index rose 4.00% in Q2 and 14.91% overall; and the FTSE NAREIT Mortgage REITs Index surged 8.53% in Q2 and 18.39% overall.

The S&P 500, however, dipped 2.75% during the last quarter.

Read: The pros of private real estate

And all but one sector of the REIT market—apartments—produced double-digit total returns. Among the major market sectors, retail is leading the pack, with a total return of 21.15% for the first two quarters.

In the second quarter, industrial trusts delivered an 18.98%, Office trusts returned 13.73% and apartments returned 9.49%. The top-performing sector was infrastructure, scoring a 16.79% total return. Health Care and Mortgage REITs followed.

REITs offer attractive yields REITs have provided solid dividend yields so far this year, outpacing the S&P 500.

The dividend yield of the FTSE NAREIT All REITs Index was 4.20%, the yield of the FTSE NAREIT All Equity REITs Index was 3.29% and the FTSE NAREIT Mortgage REITs Index yielded 12.92%.

Read: Real estate income: A haven from volatility

Home Financing REITs led the mortgage index, with a yield of 13.51%. The S&P 500 only produced a yield of 2.29% in comparison.

“REITs are required to pay out nearly all of their taxable income to shareholders, making them a strong generator of income in both up and down market environments,” says Michael Grupe, NAREIT executive vice president of research and investor outreach.

Read: REITs offer long-term stability

He adds, “Real estate rents and values tend to increase in times of rising prices, so REITs appeal to investors concerned about hedging their portfolios against the potential of rising inflation.”

The capital-raising potential of real estate trusts continues to grow, with the vehicles performing well in the public equity and debt markets in the first half of 2012. They’re on track to match or surpass the 2011 record for the annual amount of capital raised.

Read: Help clients get into private equity

REITs have raised a total of $33.21 billion so far this year, including $22.36 billion in equity offerings and $10.85 billion in unsecured debt offerings. By comparison, the U.S. REIT industry raised $51.28 billion in all of 2011, including $37.49 billion in equity and $13.79 billion in debt.

REIT industry balance sheets have remained strong as well. The current overall debt ratio for equity real estate trusts stands at 35.6%.

“The REIT industry today is well-capitalized and has the financial strength to take advantage of strategic acquisition opportunities,” Grupe notes.

Read: REITS debate: Growth versus income for a look at how the sector was struggling in 2009. Professionals were deciding whether to keep paying out substantial tax-advantaged distributions to income investors or cut payouts to save money for future growth.

Access a 10-page packet of REIT data. staff


The staff of have been covering news for financial advisors since 1998.