REITs Post Gains in First Half of ’13 but Trail Broader Equity Market

U.S. REITs posted gains overall for the first six months of 2013, with lodging/resorts, health care and self storage being the top three major property sector performers, according to the National Association of Real Estate Investment Trusts.

The FTSE NAREIT All REITs Index was up 5.41% on a total return basis for the first six months of the year, and the FTSE NAREIT All Equity REITs Index was up 5.79%.

However, REITs finished the first half behind the broader equity market, as the S&P 500 was up 13.82%, “illustrating that the two markets do not always move together,” NAREIT said.

Among the major property sectors of the REIT market, lodging/resorts was the top performer with a 10.52% total return for the first half of the year. Health care delivered a 9.44% return, and self storage was up 8.99%.

The office sector was up 6.71%, industrial was up 6.04%, residential was up 4.57% and retail was up 4.52%.

The FTSE NAREIT Mortgage REITs Index was down 0.19% for the first six months of the year, with the commercial financing subsector up 19.48% and the home financing subsector down 4.72%.

NAREIT also reported that REITs continued to provide strong yields for income-seeking investors. At the end of the year’s first half, the dividend yield of the FTSE NAREIT All REITs Index was 4.27%; the yield of the FTSE NAREIT All Equity REITs Index was 3.53%; and the yield of the FTSE NAREIT Mortgage REITs Index was 12.31%, with Home Financing REITs yielding 13.85% and Commercial Financing REITs yielding 7.02%.

By comparison, the dividend yield of the S&P 500 at the end of the first half was 2.18%. “In the full year 2012, U.S. REITs paid out a total of $29 billion in dividends to their shareholders,” NAREIT said.

Steven Wechsler, NAREIT’s president and CEO, said in a statement that “REITs play an important role in investment portfolios, providing significant, continuing income. They also provide potential portfolio diversification due to the relatively moderate correlation of their returns with those of the broader market.”

For investors “who are looking over the horizon and are concerned with the possibility of rising inflation, REITs have a track record as a potential inflation hedge,” he continued. “REIT dividend growth outpaced inflation as measured by the Consumer Price Index in all but two of the last 20 years.”

The U.S. REIT industry has continued to maintain strong balance sheets, NAREIT reported. The debt ratio for equity REITs was 33%, near its historic low.

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