mREITs Lead U.S. REIT Market’s Gains in 2017

Infrastructure Is Top Equity REIT Sector With 35 Percent Return

Record Amount of Public Capital Raised in Year

WASHINGTON, DC, Dec. 9— mREITs led the performance of the overall U.S. REIT market in 2017, with the FTSE Nareit Mortgage REITs Index delivering a 19.79 percent total return for the year, despite a negative 0.21 percent total return for the fourth quarter.

The FTSE Nareit All Equity REITs Index delivered a total return of 8.67 percent for 2017, with a 2.48 percent gain for the fourth quarter, and the FTSE Nareit All REITs Index, which contains both equity and mREITs, had a total return of 9.27 percent for the year with a 2.37 percent gain for the fourth quarter. The S&P 500’s total return for 2017 was 21.83 percent, with a gain of 6.64 percent in the fourth quarter.

“The performance of the total U.S. REIT market last year, as measured by the FTSE Nareit All REITs Index’s 9.27 percent total return, is very representative of the market’s long-term performance,” said Nareit President and CEO Steven A. Wechsler. “Since the beginning of 1972, when the index was created, its average annual return has been 9.72 percent. Over the longer term, REITs have been a remarkably consistent investment, delivering solid long-term performance and consistent income for their shareholders.”

Wechsler noted that the broader equity market’s performance was driven by large cap growth stocks in 2017 – primarily companies in the information technology industry, with the S&P 500 Information Technology Sector returning an exceptional 38.83 percent.

Double-digit returns in many equity REIT property segments

Nearly half of all equity REIT market segments had double-digit total returns in 2017. The Infrastructure sector, whose largest companies are cell phone tower REITs, led the equity REIT market’s performance with a 35.38 percent total return for year. Data Centers delivered a 28.43 percent return for the year, followed by Manufactured Home Communities with a 21.93 percent gain, Timber REITs with 21.92 percent, Industrial REITs with 20.58 percent, Single-Family Home REITs with 17.49 percent and Specialty REITs with 13.22 percent.

Among mREITs, the Home Financing REITs segment delivered a 23.33 percent total return for 2017, and Commercial Financing REITs gained 9.07 percent.

REITs deliver for yield-seeking investors

REITs continued to offer strong dividend yields for income investors in 2017. The Home Financing segment of the FTSE Nareit Mortgage REITs Index had a dividend yield of 10.57 percent at year-end, while the Commercial Financing segment’s yield was 7.68 percent.

Among equity REITs, property segments with yields at year-end that exceeded the 3.94 percent yield of the FTSE Nareit All Equity REITs Index included:

  • Specialty REITs – 6.24 percent
  • Lodging/Resorts – 5.97 percent
  • Health Care – 5.83 percent
  • Diversified – 5.14 percent
  • Free Standing Retail – 4.92 percent
  • Shopping Centers – 4.53 percent
  • Regional Malls – 4.50 percent

In comparison, the dividend yield of the S&P 500 Index at year-end was 1.86 percent.

Industry’s leverage declines in year

REITs raised a record $92.14 billion in equity and debt in the public capital markets in 2017, 20 percent more than the $76.96 billion raised in 2013, the industry’s next most active year for capital raising.

Equity raised in 2017 included $2.92 billion in nine IPOs, $27.48 billion in secondary offerings of common shares and $10.97 billion in preferred shares. REITs also raised a record $50.77 billion in unsecured debt in 2017, surpassing the $37.26 billion raised in 2016, the previous record year for capital raised in the unsecured debt markets.

REITs used the proceeds from the bond offerings primarily to replace debt issued earlier, and the industry’s debt ratio (total debt divided by total market capitalization) declined slightly to 31.7 percent at the end of 2017 from 32.1 percent a year earlier.

Strong returns in Europe, Asia/Pacific, Middle East/Africa

Listed real estate shares, including REITs, advanced in markets around the globe in 2017. The FTSE EPRA/Nareit Global Real Estate Index delivered a 15.01 percent total return, calculated in U.S. dollars, in the year. The index’s 477 companies have a combined equity market capitalization of $1.7 trillion, approximately 72 percent of which is from REITs.

The European segment of the index led its performance in 2017 with a 28.78 percent total return, closely followed by the Asia/Pacific segment with its 26.79 percent total return. The index’s Middle East/Africa segment delivered an 18.52 percent return and the Americas segment gained 4.87 percent.

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