Real Estate Returns Outperform S&P 500 in March

REITs Gain 3.74 Percent, S&P 500 Declines 2.54 Percent in the Month

Apartment REITs Deliver 7.39 Percent Gain

WASHINGTON, DC, April 6— Real estate returns rebounded in March , partially reversing declines in the first two months of the year, Nareit reported.

The FTSE Nareit All REITs Index, the broadest index of the U.S. REIT industry containing both equity and mREITs, gained 3.74 percent on a total return basis in March. The FTSE Nareit All Equity REITs Index climbed 3.71 percent in the month and the FTSE Nareit Mortgage REITs Index delivered a 6.54 percent total return. In comparison, the total return of the S&P 500 fell 2.54 percent in March.

In the first quarter of 2018, the total returns of the FTSE Nareit All REITs Index and the FTSE Nareit Equity REITs Index fell 6.66 percent, and the FTSE Nareit Mortgage REITs Index was down 4.06 percent. The total return of the S&P 500 fell 0.76 percent in the first quarter.

“Investors in the past month have become more aware of the value proposition real estate offers relative to other segments of the stock market,” said Nareit President and CEO Steven A. Wechsler. “The REIT industry is continuing to generate earnings and dividends growth. Occupancy rates have reached record highs and, with the lowest leverage in more than 20 years, REITs are well-equipped to continue delivering earnings growth in a rising interest rate environment,” Wechsler said.

Apartment REITs Lead March Gains

Apartment REITs led the REIT market in total returns with a 7.39 percent gain in March. Other equity REIT market segments whose total returns outperformed the FTSE Nareit All Equity REITs Index were:

  • Data Centers – up 6.35 percent
  • Health Care – up 5.89 percent
  • Free-Standing Retail – up 5.12 percent
  • Manufactured Homes – up 5.05 percent
  • Lodging/Resorts – up 4.63 percent
  • Industrial – up 4.59 percent
  • Single-Family Homes – up 4.59 percent
  • Self-Storage – up 4.36 percent
  • Infrastructure – up 3.75 percent

Among mREITs, Home Financing mREITs were up 7.29 percent in March and Commercial Financing REITs were up 4.46 percent.

On a 1-year trailing basis, three REIT market segments delivered total returns that outperformed the S&P 500’s 13.99 percent. They were Infrastructure (22.27 percent); Industrial (17.33 percent); and Manufactured Homes (16.07 percent).

Mortgage REITs Offer Impressive Yields

Mortgage REITs offered impressive dividend yields for income investors at the end of March, with the FTSE Nareit Mortgage REITs Index yielding 10.47 percent. The Home Financing REITs segment of the index yielded 11.33 percent, and the Commercial Financing REITs segment yielded 8.08 percent.

The FTSE Nareit All REITs Index’s 4.59 percent yield and the FTSE Nareit All Equity REITs Index’s 4.27 percent yield significantly outpaced the 2.00 percent dividend yield of the S&P 500.

Equity REIT market segments whose dividend yields exceeded the yield of the FTSE Nareit All Equity REITs Index’s at the end of March were Specialty (7.34 percent); Health Care (6.63 percent); Diversified (5.63 percent); Lodging/Resorts (5.56 percent); Shopping Centers (5.48 percent); Free-Standing Retail (5.45 percent); and Regional Malls (5.26 percent).

In 2017, public listed REITs paid out approximately $53.2 billion in dividends. Public non-listed REITs paid out an additional $4.3 billion.

REIT Balance Sheets Remain Strong

The REIT industry has continued to maintain a very low level of leverage in 2018 with a debt ratio of 31.7 percent for the FTSE Nareit All Equity REITs Index, approximately flat with the 32 percent debt ratio for the index at the same time last year.

REITs raised a total of $15.03 billion in public capital markets in the first quarter of this year, including $2.74 billion in three IPOs, $3.52 billion in secondary equity and $8.77 billion in unsecured debt. The capital raised in this year’s first quarter was down from the same quarter last year when REITs raised $23.11 billion in public markets, including $1.87 billion in three IPOs, $9.80 billion in secondary equity and $11.44 billion in unsecured debt.

REITs have continued to use the proceeds from bond offerings primarily to replace debt issued earlier with lower-cost, longer-term debt. REITs have locked in low interest rates until well into the next decade, with the weighted average maturity of their debt at 75.1 months at the close of 2017.

U.S. Industry Market Cap Exceeds $1 Trillion

The equity market capitalization of the 226 REITs in the FTSE Nareit All REITs Index on March 31 this year was $1.062 trillion, approximately the same as the $1.069 trillion for the 224 REITs in the index on the same date last year.

Equity REITs make up the bulk of the U.S. REIT industry. The equity market capitalization of the 169 REITs in the FTSE Nareit All Equity REITs Index on March 31 this year was $986.8 billion, up slightly from $984.5 billion for the 167 REITs that made up the index at the same time last year.

REITs owned approximately $2 trillion of commercial real estate assets at the end of this March, including assets held by listed and non-listed public equity and mREITs.

Global Listed CRE Market Also Rebounds in March

Listed real estate also delivered gains for investors in most regions around the world in March. The FTSE EPRA/Nareit Global Real Estate Index delivered a 2.28 percent total return in the month, calculated in U.S. dollars. The index’s 478 companies have a combined equity market capitalization of $1.6 trillion, approximately 71 percent of which is from REITs.

The European segment of the index led its performance in March with a 4.49 percent total return, followed by the Americas segment with a 3.64 percent gain and Middle East/Africa with a gain of 1.02 percent. The Asia/Pacific segment declined 0.56 percent in March.

For the first quarter of 2018, the global index’s total return declined 3.41 percent. The Middle East/Africa segment gained 6.19 percent; Asia/Pacific was up 0.81 percent; Europe was down 0.81 percent; and the Americas segment was down 7.23 percent.

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