REITs Outshine Equities in First Nine Months of 2010

Top-performing REIT segments: apartments, free-standing retail facilities

Third quarter REIT performance from National Association of Real Estate Investment Trusts (NAREIT) showed that U.S. REITs considerably outperformed the broader equity market in the first nine months of 2010.

According to NAREIT, REIT returns were nearly five times greater than those of the broader U.S. equity market in the first three quarters of 2010. The FTSE NAREIT Equity REIT Index delivered a 19.10% total return and the FTSE NAREIT All REITs Index delivered an 18.50% total return for the period, compared to 3.89% for the S&P 500.

On a 12-month basis ended Sept. 30, NAREIT found that “REITs nearly tripled the returns of the broader market,” with the FTSE NAREIT Equity REIT Index delivering a 30.28% total return and the FTSE NAREIT All REITs Index delivering 28.27%, compared to 10.16% for the S&P 500.

The Apartments sector was the top performing segment of the U.S. REIT market in the first nine months of the year with a 32.83% total return, according to NAREIT. Other top performing segments according to NAREIT were: Free-Standing Retail facilities, up 29.99%; Diversified REITs, up 23.07%; Self-Storage REITs, up 22.34%; Regional Malls, up 21.86%; and Lodging/Resorts, up 19.12%.

REITs also performed well for yield-seeking investors in the first nine months of the year. The cash dividend yield of the FTSE NAREIT All REITs Index on September 30 was 4.55% and the cash dividend yield of the FTSE NAREIT Equity REIT Index was 3.78%, compared to a 2.52% yield for 10-year U.S. Treasuries and 2.03% for the S&P 500.

A primary factor driving the share performance of REITs, NAREIT said in a statement, “is the fact that the REIT industry significantly recapitalized itself through its access to the public equity and debt markets in 2009 and through the first nine months of this year—sources of capital that were unavailable to private equity real estate funds.”

REITs raised $34.7 billion in 130 equity and debt offerings in 2009 and $32.5 billion in 131 offerings through the first nine months of this year, including $14.9 billion this year in 69 secondary equity offerings and another $1.6 billion in eight IPOs. REITs have used the proceeds of the offerings to pay down debt and begin to make strategic acquisitions of properties. The debt ratio of the FTSE NAREIT Equity REIT Index (debt as a percentage of total market capitalization) currently stands at 43.5%, down approximately one-third from 66.3% at the REIT market’s trough in March 2009.

Reprints Discuss this story
This is where the comments go.