REITs Still Up YTD Despite Q3's Poor Returns

WASHINGTON, DC—REITs' performance in the third quarter took an uncharacteristic dip, or perhaps dive, underperforming the S&P 500. However, as new statistics from industry association NAREIT makes clear, publicly-traded securities of real estate companies are still ahead for 2014.

First the bad news for investors in these securities: the total return of the FTSE NAREIT ALL REITs Index declined 2.63% in the third quarter of 2014 and the FTSE NAREIT All Equity REITs Index fell 2.48%, compared to an increase of 1.13% for the S&P 500 Index.

The good news, briefly here and to be discussed in greater detail momentarily, is that REITs have delivered a 13% total return to investors for the first three quarters of 2014.

The question of why REITs underperformed in Q3, however, must be examined. Certainly there was some global political and economic volatility; also the question of the Federal Reserve raising interest rates was, again, the topic du jour at certain points.

So was it the interest rate talk? It is hard to say, Brad Case, senior vice president for research and industry information at NAREIT, said in a video interview about REITs' performance for the quarter and the year, that is posted on NAREIT's website.

It is possible it was due to interest rate concerns, he says, but then historical data is somewhat conflicting. REIT performance is usually positive when interest rates are rising for the right reasons (emphasis mine) because of the positive correlation between strong fundamentals and economic growth.

Case also noted that September was a bad month for a number of asset classes besides REITs. Stocks and bonds all did poorly, he said. "There was no place to hide."

Considering 2014 as a whole, REITs have done very well, Case also noted and NAREIT's new figures bear this out.

The FTSE NAREIT ALL REITs Index was up 13.08% on a total return basis for the first three quarters of the year, with a dividend yield of 4.31%, as of September 30.

The FTSE NAREIT All Equity REITs Index was up 13.36%, with a dividend yield of 3.75%. These results compared to the S&P 500 Index total return for the first three quarters of 2014 of 8.34% and a dividend yield of 2.06%.

The FTSE EPRA/NAREIT Global Real Estate Index, which represents 458 companies from around the world with a combined market capitalization of $1.3 trillion, delivered a total return of 7.18% for the first nine months, with a dividend yield of 3.66% at September 30.

REITs also posted strong capital raising activity for the first nine months of the year, although it has not been as robust as the same period in 2013.

Publicly-listed US REITs raised $51.2 billion in new capital in the first nine months of 2014, compared to $60.6 billion for the same period last year. Listed REITs raised $24 billion of common and preferred equity, including three IPOs that raised a total of $763 million, and $27.2 billion of unsecured debt for the first three quarters of the year.