US Stocks Continue to Outstrip REITs

WASHINGTON, DC-US REITs underperformed the S&P 500 last month. This, unfortunately for REIT shareholders, has been a recurring theme for 2013. NAREIT notes that US REIT returns underperformed the S&P 500 for the first seven months of the year; meanwhile the broader market has made a steady ascent.

On a total return basis, the FTSE NAREIT All REITs Index rose 0.53% in July and the FTSE NAREIT All Equity REITs Index gained 0.83%. The S&P 500 was up 5.09%. Year-to-date through July, the FTSE NAREIT All REITs Index gained 5.97% and the FTSE NAREIT All Equity REITs Index gained 6.67%, while the S&P 500 was up 19.62%.

For the 12 months ended July 31, the FTSE NAREIT All REITs Index was up 7.82% and the FTSE NAREIT All Equity REITs Index was up 8.76%, compared to the S&P 500's gain of 25%.

REITs are clearly not doing as well as the stock market, but NAREIT VP of Research Brad Case notes in a video posted to the association's website that hardly any assets are performing as well as the stock market these days.

"So, really, the story is not so much about weakness in the REIT industry," he says. "It's that recently the REIT industry has underperformed the stock market because the stock market has been roaring."

Case also noted that the strongest performing sectors—lodging, industrial, office and retail—are benefitting from an "increase in confidence in the pace of the economic recovery."

Indeed, year-to-date through July, Lodging/Resorts was the industry's top-performing major sector with a 16.66% total return. Self Storage was up 12.70%; industrial was up 9.22%; office was up 8.43%; timber was up 8.28% and retail was up 6.74%, led by shopping centers, which were up 10.96%.

Case pointed out that one of the weakest performing sectors has been multifamily, which he attributed that to investors misreading signals about what is happening in the housing market. "I think people have been looking at strength in the single-family market and increase in mortgage lending and saying, 'Does that spell bad news for apartment rental REITs?' And the answer is it does not."

By at least one measure, at least, REITs are having a good year: capital raising.

According to a separate report by SNL Financial, US equity REITs raised $35.07 billion in 2013 through July 19, more than the $34.81 billion raised through the same period in 2012. By sector, retail REITs led with $6.89 billion raised. Office REITs came in second and raised $6.3 billion over the period.