Positive Outlook for REIT Returns

NAREIT's latest report reveals that stock exchange-listed REITs outperformed the broader U.S. equity market last year, likely signaling a good year ahead for REITs.

By Keith Loria, Contributing Editor

Steve Wechsler,
Steve Wechsler, President & CEO, NAREIT

The National Association of Real Estate Investment Trusts (NAREIT) has issued a new report that shows that stock exchange-listed REITs outperformed the broader U.S. equity market last year, while large-cap stocks outperformed mid- and small-caps, and large-cap REITs outperformed other large-cap equities.

“In a year of equity market turmoil, REITs demonstrated why they are an essential, all-season allocation in diversified investment portfolios,” Steven Wechsler, NAREIT’s president & CEO, said in a prepared release. “Market uncertainty is likely to continue in 2016, and it will be important for investors to maintain exposure across all major asset classes, including REIT-based real estate investment, to earn solid, long-run returns.”

The NAREIT report revealed that in 2015, the FTSE NAREIT All REITs Index, which includes both equity and mortgage REITs, delivered a total return of 2.29 percent, while the total return of the FTSE NAREIT Mortgage REITs Index fell 8.88 percent. In comparison, the S&P Composite 1500, which, like the REIT market, includes large-, mid- and small-cap stocks, returned 1.01 percent.

According to data in the report, REITs’ total return advantage was magnified in the performance comparison between large-cap REITs and other large-cap stocks, and REITs continued to reward income-seeking investors in 2015.

By category, the Self-Storage and Residential REITs lead in returns, according to the report. The Self-Storage sector delivered a 40.65 percent total return for the year, while the Manufactured Homes subsector of the Residential sector provided a 25.65 percent total return, and Apartments gained 16.45 percent.

John Good, president & COO of Jernigan Capital, spoke at REITWorld 2015 about the Storage segment.

“Self-storage developments have no cash flow or tenants on day one, so they are effectively shut out of the market. We are seeing an amazing volume of deals coming our way,” he said. “There have not been many facilities built since the crisis, and there’s a tremendous need just to keep up with population growth.”

Good also said he expects 2016 to be a solid year for development due to the level of pent-up demand and the low level of new supply.

Other property segments that outperformed the overall REIT market in 2015 were Free-Standing Retail, up 5.88 percent; Shopping Centers, up 4.72 percent; Regional Malls, up 4.23 percent; Infrastructure, up 3.74 percent; and Industrial, up 2.64 percent.

Overall, stock exchange-listed REITs raised a total of $59.29 billion in public capital in 2015 to deploy as part of their value creation strategies, compared with $63.64 billion raised in 2014. Meanwhile, listed REITs raised $27.09 billion of common and preferred equity in 2015, including $1.42 billion in seven IPOs, as well as $32.20 billion of unsecured debt.