WASHINGTON, DC—REIT investors acted on their jitters about the possibility of an interest rate increase, and the sector's returns for the first half of 2015 suffered accordingly. NAREIT says that although listed REITs have raised more equity and debt year to date than they did in the first half of 2014, the S&P 500 and S&P 1500 had outperformed the primary US REIT indices as of June 30.

Total returns for the FTSE NAREIT All REITs Index, All Equity REITs Index and All Mortgage REITS Index fell 5.24%, 5.44% and 5.09%, respectively, for the first half of the year. In comparison, the S&P 500 delivered a 1.23% percent total return in the first six months, while the S&P Composite 1500 returned 1.56%.

Some REIT sectors did better than others when it came to returns. Manufactured home REITs posted a 3.75% return, with self-storage trusts close behind at 3.72%. Apartment REITs posted a 0.82% return, the only one of the major property types to post a positive return YTD. Healthcare and industrial fared worst at -11.74% and -11.33%, respectively, followed by hotels at 10.35%.

“REITs continued to have strong underlying operating fundamentals in the first half of the year, with rising rents and occupancy rates supported by limited supply and development of real estate,” says Steven A. Wechsler, NAREIT's president and CEO. “REIT returns, however, were negatively impacted by investor expectations about the effect of rising interest rates on real estate and REIT share prices.”

Reuters on Thursday suggested that REITs may be taking the rap for interest rate fears. Jim Sullivan, managing director at Newport Beach, CA-based Green Street Advisors, told Reuters that a broad selloff may be a "knee-jerk reaction.” If interest rates are going up because of faster economic growth, “then that's good for commercial real estate.”

Even so, listed REITs collectively did better with capital-raising than they did last year, garnering a total of $39.71 billion from the public capital markets in the first six months of the year. That compares to $35.12 billion in last year's first half.

Much of the difference was in secondary offerings, which totaled $19.72 billion, or about $4 billion more than REITs raised last year at this time. YTD there have been six IPOs totaling $1.37 billion, compared to three IPOs totaling $762 million in the first half of '14, and $18.62 billion in unsecured debt, down slightly from last year's YTD total of $18.69 billion in unsecured debt.

One key area in which REITs continued to outperform the S&P indices was dividend yields.  At June 30, the dividend yield of the FTSE NAREIT All REITs Index was 4.34%, that of the All Equity REITs Index was 3.87% and that of Mortgage REITs Index was 11.46%. In comparison, the dividend yield of the S&P 500 was 2.10%, and the S&P Composite 1500 yielded 2.04%. “Strong, consistent dividend income is an important component of REIT performance,” says Wechsler.