As we approach the end of a tumultuous 2011, it's time to look back at the biggest winners and losers of the year.
So in this series, that's exactly what we're doing, sector by sector. Today, let's take a look at the industrial REIT sector. First, the backstory, then the results.
This year, we saw U.S. Treasuries get downgraded from AAA status while Congress played politics instead of fixing the budget; a domestic economy that has been recovering from its financial crisis in fits and starts; big trouble in Europe; and a Chinese economy that doesn't seem so bulletproof.
The daily volatility in the financial industry has been tremendous, but REITs haven't been swinging around as wildly as banks. Part of that is European debt fears manifesting in bank stock volatility, but the REITs have also been less volatile because of the dividend yields that are a hallmark of the sector. This is because a REIT has to pay out 90% of its taxable income in order to keep its favorable tax status.
Another thing to keep in mind with REITs is that most are heavily leveraged. As a result, any change in the Fed's actions to keep interest rates low could hurt future debt refinancings.
How the industrial REITs fared in 2011
For context, the S&P 500 has returned 2.4% after dividends this year. In other words, the market has been basically flat. Here's how the largest public industrial REITs performed:
2011 Dividend-Adjusted Return
Price-to-Tangible Book Value
|Monmouth Real Estate Investment (NYSE: MNR )||16.7%||1.9|
|DuPont Fabros Technology (NYSE: DFT )||16.1%||1.5|
|First Industrial Realty Trust (NYSE: FR )||15.6%||0.9|
|EastGroup Properties (NYSE: EGP )||8.6%||3.1|
|DCT Industrial Trust (NYSE: DCT )||2.2%||1.1|
|Prologis (NYSE: PLD )||(5.6%)||1.0|
|First Potomac Realty Trust (NYSE: FPO )||(17.1%)||1.3|
Source: S&P Capital IQ.
Four of these industrial REITs beat the market while three didn't. But there were no outsized winners or losers in this group.
As for current dividend yields, they range from none for First Industrial Realty Trust, to 6.4% for Monmouth. Monmouth happens to also have the highest total return for 2011, but that isn't always the case. For example, the second biggest current dividend yield belongs to First Potomac Realty Trust, the laggard of the group.
Commercial and industrial real estate can be especially tricky in this environment, but we're seeing many of these REITs trading close to tangible book value. There may be value for skilled rock turners, but be careful.
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