REITs Continue Their Magic Act

WASHINGTON, DC-US REITs continue to perform minor miracles for their shareholders—at least compared to other investment vehicles these days—by outperforming the broader equity market in Q2, for the first half of the year and for the last 12 months, according to NAREIT statistics. For Q2, total return of the FTSE NAREIT All REITs Index was up 4.55%, the FTSE NAREIT All Equity REITs Index was up 4%, and the FTSE NAREIT Mortgage REITs Index was up 8.53%. For that same time period, the S&P 500 fell 2.75%.

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For the first six months of the year, the total return of the FTSE NAREIT All REITs Index was up 15.43%, the FTSE NAREIT All Equity REITs Index up 14.91%, and the FTSE NAREIT Mortgage REITs Index up 18.39%.

That compares with a 9.49% gain for the S&P 500. For the 12-month period ending June 30, REITs more than doubled the performance of the broader market, NAREIT noted, with the FTSE NAREIT All REITs Index up 12.65%, the FTSE NAREIT All Equity REITs Index up 12.48%, and the FTSE NAREIT Mortgage REITs Index up 10.94%. The S&P 500, by contrast, rose 5.45%.

REITs have always been an attractive asset class for investors but now in particular they stand out, Michael Grupe, executive vice president of research and investor outreach, tells GlobeSt.com. Treasuries—the go-to investment vehicle for many income investors—are yielding very low rates, he said, and even the most conservative investors can’t help but compare them to REIT returns.

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“We're still in a period of unusually slow economic recovery,” Grupe says. “The housing industry has still not stabilized and consumers are still trying to make sense of the tremendous uncertainty that is apparent global. For that reason, traditional investments are not delivering the way they used to.”

So far this year retail has been the performing sector for REITs--a surprise to anyone following the red-hot investment and development cycle for multifamily. There is a reason for that Grupe said—namely, apartments have been at the top of the cycle for at least two years and investors are starting to get cautious.

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“Multifamily REITs have delivered extraordinary performance over the past two years," he noted. "In 2011 apartments were up 15% compared to the overall index, which was up 8%. Over a three-year period they rose 41% compared to a 32% increase from the overall index.”

What may be happening, Grupe speculated, is that some investors are wondering whether the multifamily streak has run its course. Grupe, for his part, doesn’t think so, pointing to the significant amount of pend up demand for apartments by young people entering or re-entering the workplace.

Still, it is clear that retail is the new golden child of the industry, posting a total return of 21.15% for the first half of the year, led by the regional malls category with a 22.71% total return. Industrial REITs delivered an 18.98% return for the period; Office REITs, 13.73% and multifamily returned 9.49%. Mortgage REITs delivered an 18.39% total return in the first half.

For Q2, infrastructure was the top performing sector clocking in with a 16.79% total return, followed by health care with a 10.21% return, and mortgage REITs, which returned 8.53%.