Seeking Alpha
Long only, growth at reasonable price, research analyst, REITs
Profile| Send Message| ()  

Now that the 2012 third quarter is over, I thought it would be a good time to get out the look-back machine and review how the REIT sector has performed over the last year. In general, it was a very good 12 months for stock investors - both regular stocks and the average REIT put up very good numbers.

Methodology: I use a spreadsheet which pulls an adjusted share price from Yahoo Finance and calculates a total return by dividing the actual closing share price on Sept. 30, 2011 into the difference between the Sept. 28, 2012 close and the year ago adjusted close. The adjusted share price takes into effect dividends paid over the course the year.

Overall Returns

My spreadsheet database includes 140 REIT stocks which have been in existence for at or near one year. For a baseline comparison, I calculated the return of the SPDR S&P 500 ETF (SPY). The total return reflects a combination of share price appreciation and dividends paid.

  • SPDR S&P 500: +29.3%
  • Average REIT return: +38.0%
  • Median REIT return: +36.8%

The range of individual REIT returns was, in my opinion, very broad, ranging from a 156% gain to one REIT posting a negative return and another half-dozen producing less than double-digit returns. Across the sector, 85% of REIT stocks were up 20% or better for the year.

REIT Returns of Interest

The top performing REIT for the last 12 months was small cap office REIT, Thomas Properties Group (TPGI) which made investors 156% richer over the last 12 months. Three other REITs had better than 100% total returns: Pennsylvania R.E. Investment (PEI), FelCor Lodging (FCH) and NorthStar Realty Finance (NRF). This is definitely a mixed bunch with a couple of little or no dividend payers matched with one high-yield REIT - NRF. Next on the list with a near double was Newcastle Investment (NCT), another REIT with a double-digit yield which I covered in this article.

The only REIT showing a negative return for the last year was CommonWealth REIT (CWH) with a negative 14% share price plus dividend return. Commonwealth REIT did spinoff a portion of the business, but this article covers the poor results the REIT has produced for investors. Five other REITs produced less than a 5% total return for the 12 months: Campus Crest Communities (CCG), Franklin Street Properties (FSP), Associated Estates Realty (AEC), Washington R.E. Investment Trust (WRE) and Healthcare Trust of America (HTA).

Mortgage REIT Results

In my recent article on 3-year REIT returns: High Yield mREIT Investors Are Missing Out On The Alpha, I noted that the majority of mREIT results landed in the bottom third of all REIT stocks. For the last 12 months, the 17 REITs investing primarily in home mortgages were spread up and down the list. The top mREIT was American Capital Mortgage Investment (MTGE), ranking at number 15 and returning 65% to investors over the last year. PennyMac Mortgage Investment Trust (PMT) and Invesco Mortgage Capital (IVR) made it into the to 25, with total returns of about 56%.

Three mortgage REITS were in the bottom 10 of the one-year REIT returns: Annaly Capital Management (NLY), Anworth Mortgage Asset (ANH) and Chimera Investment Trust (CIM) all returned their dividend yields with no appreciable share price appreciation. Over a 12-month period of very good share price appreciation across the markets, not having any appreciation could be viewed as a significant negative.

Conclusions

Investors should review the results of their REIT holdings for the last year. With over 30 real estate stocks producing returns greater than 50%, hopefully some of your holdings were in that group. Any REIT which did not produce at least a 20% return deserves a serious review whether or not is should remain in a portfolio. My philosophy tends to view dog stocks as dog stocks and not turn around candidates. In the REIT world, the best return potential seems to come from those stocks with moderate to high dividend yields and a recent history of dividend increases.

Drop a symbol in the comments if you want the total return result for any specific REIT.

Source: REIT Sector Ends Q3 With Market Beating One-Year Results