WASHINGTON, DC-Last month, REITs continued their recent trend of underperforming the general equity market while holding onto their gains for the year, as new figures from NAREIT show. However, the fundamentals for these securities are solid and investors looking for upside can still find some, Calvin Schnure, vice president of Research and Industry Information at NAREIT, tells GlobeSt.com. In particular, the relatively skimpy supply pipelines in many markets mean that REITs are well positioned to benefit from the improved economy, he says.
"In general, commercial real estate is well positioned in the overall economy," Schnure says. "The talk of overvaluation comes when prices are compared to REITs' FFO. On that measure REITs do seem a bit rich. Another positive sign for REITs are their ongoing capital raising endeavors, which have clocked in at $3 billion to $4 billion a month. "That indicates there's strong demand for these securities."
NAREIT reports that on a total return basis, the FTSE NAREIT All REITs Index lost 0.64% in November and the FTSE NAREIT All Equity REITs Index lost 0.27%, while the S&P 500 gained 0.58%. For the first 11 months of the year, the FTSE NAREIT All REITs Index was up 16.42% and the FTSE NAREIT All Equity REITs Index was up 15.49%, compared to the S&P 500’s gain of 14.96%.
For the 12 months ended Nov. 30, the FTSE NAREIT All REITs Index was up 21.72% and the FTSE NAREIT All Equity REITs Index was up 21.03%, compared to the S&P 500’s gain of 16.13%. Certain segments of the REIT industry are performing better than others, to state the obvious.
Timber has done well this year, clearly in response to demand for wood as housing starts regain their momentum. Also, health care REITs have been showing a steady rate of performance, Schnure says. In that case, demographics are on health care REITs' side, he says. "For someone looking for longer term play based on the baby boom generation the health care sector is well positioned." According to NAREIT, timber was the top-performing sector with a 33.84% total return for the first 11 months of 2012. Other high performers include retail, up 23.61%; office up 10.50%; and apartments by 2.64%.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
