Mortgage REITs Post Many Happy Returns

WASHINGTON, DC—Mortgage REITs have been the stars of the listed REIT sector thus far in 2017, according to NAREIT data. The FTSE NAREIT Mortgage REITs Index delivered a 20.04% total return for the first nine months of the year, helped by a 3.5% in the third quarter. That compares to the performance of the FTSE NAREIT All Equity REITs Index, which delivered a 6.04% for the period and a 1.11% return for Q3. It also beats the S&P 500, which delivered a total return of 14.24% for the year's first three quarters and 4.48% fr the most recent three-month period.

“Mortgage REITs have rewarded their investors with strong total returns,” says NAREIT president and CEO Steven A. Wechsler. “While equity REITs have underperformed the broader market so far this year, REIT operating fundamentals remain solid, and the industry is continuing to provide the stable income and portfolio diversification that many investors are seeking.” The FTSE NAREIT All REITs Index, which combines the results of equity and mortgage REITs, had a total return of 6.74% in the first nine months of the year and 1.24% for Q3.

Among equity REITs, which account for more than 90% of US listed REITs' equity market capitalization, the data center, infrastructure and industrial segments of the market delivered the strongest gains for the first three quarters of this year. These sectors posted returns of 27.95%, 24.39% and 18.46%, respectively.

Other equity REIT market sectors with double-digit total returns for the first nine months of the year were manufactured home communities (17.03%); timberlands (16.26%); specialty (15.36%); and single family homes (13.79%). NAREIT data show that as of Q2, 71 Equity REITs were rated investment grade, or 69% by equity market capitalization.

Among mortgage REITs, home financing REITs produced the strongest total returns year to date at 23.97%. Commercial financing REITs delivered a 7.97% gain for the period.

One metric in which equity REITs have outperformed the broader market has been dividend yields. NAREIT says that the All Equity REITs Index posted a 3.85% yield at the end of Q3, compared to 1.97% for the S&P 500.

Drilling down into specific sectors, NAREIT says that seven equity REIT market segments delivered yields greater than 4% at the end of the most recent quarter. They included specialty, 5.93%; healthcare, 5.31%; freestanding retail, 4.97%; diversified, 4.91%; regional mall, 4.85%; lodging/resorts, 4.74%; and shopping centers, 4.64%. The dividend yield of the FTSE NAREIT Mortgage REITs Index was 9.56% percent at the end of Q3.

Listed REITs have also been more active with fundraising this year. They raised 25% more capital through the first nine months of this year compared to the year-ago period, according to NAREIT.

REITs raised $73.97 billion of equity and debt in the first nine months of this year compared with $59.12 billion in the same period last year. Secondary equity offerings totaled $33.81 billion in this year's first nine months, compared with $26.47 billion in the same period last year. Unsecured debt offerings totaled $37.24 billion, compared with $31.16 billion last year. The equity raised by REITs in the first three quarters of this year included $2.92 billion in nine IPOs, compared to $1.48 billion raised in three IPOs during the same period in 2016.