WASHINGTON, DC—REITs in the first quarter continued to demonstrate that their Q3 2014 slump was an anomaly. NAREIT said Monday afternoon that total returns for listed REITs in the first three months of this year outperformed the S&P 500 by a factor of four to one, with the self-storage sector leading the way.
Specifically, the FTSE NAREIT All REITs Index, which includes both equity and mortgage trusts, produced a 4.05% total return in Q1, while the equity REITs index delivered a 3.98% total return and the mortgage REITs index 2.35%. All three metrics dwarfed the S&P 500's 0.95% return for the quarter.
By a slightly narrower margin, REITs' dividend yields also surpassed that of the S&P 500. As of March 31, the dividend yield of the FTSE NAREIT All REITs Index was 3.80%, while for the FTSE NAREIT All Equity REITs Index it was 3.37% and the FTSE NAREIT Mortgage REITs Index yielded 10.56%. For the S&P 500, the dividend yield as Q1 ended was 2.02%. REITs also paid out 35% more in dividends to shareholders in '14 than they did the year prior: $46 billion, including $4 billion paid out by public non-listed REITs, compared to $34 billion in 2013.
As of March 31, the compound annual total returns of the FTSE NAREIT All Equity REITs Index had outperformed those of the S&P 500 for the past one-, five-, 10-, 15-, 20-, 25-, 35- and 40-year periods, according to NAREIT. Steven A. Wechsler, NAREIT's president and CEO, notes that REITs' dividends are “an important component of their total return performance. REIT dividend income has accounted for approximately 60% of total returns over longer holding periods.”
Self-storage REITs' 9.16% total return was the highest in the REIT sector for Q1. Residential REITs, including both multifamily and manufactured home properties, came up next with a 7.87% return. Within that group, manufactured homes produced an 8.92% return, while apartments delivered a 7.8% total return.
Office REITs delivered a 6.71% return in Q1, bolstered by rising demand and limited supply. Economic trends also boded well for retail REITs, which delivered a 5.84% return. The best returns within that segment came from freestanding retail REITs with a 7.4% return.
The year's first quarter saw REITs double their fundraising totals compared to the year-ago period: $22.09 billion, up from $11.16 billion in Q1 '14. Leverage levels have remained conservative, with the total debt ratio—debt divided by market capitalization—hitting 40.2% for the All REITs Index and 33.5% for the All Equity REITs Index.
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