The Financial Times Stock Exchange Real Estate Investment Trusts (REIT) Index reported a total return of 27.15 percent in 2014, outpacing that of the Dow Jones Industrial Average, Standard & Poor 500, and NASDAQ, according to a report from Trepp.
In an 11-month period from the end of 2013 to November 2014, the REIT market cap expanded from $670 billion to $890 billion, according to Trepp. The expansion can be attributed to an active effort by REITs to improve their returns with a focus on core competencies and by undertaking transactions to improve the focus of their portfolios. REIT markets also responded well to the Federal Reserve sticking to its plan to end its massive QE3 bond-buying program (which they did in late October) while maintaining low interest rates.
Also, several countries adopted a REIT format due to the increased international exposure of U.S. REITs. The sector remained attractive to investors due to improving real estate market fundamentals (driven by a limited supply and increased demand) and strong REIT dividend returns in an environment of low interest rates, thus enabling the REIT markets to perform so well in 2014, according to Trepp.
Data from the National Association of Real Estate Investment Trusts (NAREIT) indicates that REITs raised more than $31 billion in secondary debt and more than $25 billion in secondary equity through the first 11 months of 2014, according to the data. Two REITs, Simon Property Group and Prologis raised more than $2 billion each in secondary debt, while four groups each raised more than $1 billion in secondary equity – Health Care REIT, American Realty Capital Properties, NorthStar Realty Finance, and Brixmor Property Group.
The strong showing by REITs in 2014 indicates that they are poised for another big year of expansion in 2015, according to Trepp.