Image: Shutterstock

Real estate returns in March recouped some of their January and February losses, Nareit reported Friday.

The FTSE Nareit All REITs Index, which comprises both equity and mortgage real estate investment trusts, had a total return of 3.74% in March. The FTSE Nareit All Equity REITs Index climbed 3.71%, and the FTSE Nareit Mortgage REITs Index delivered a 6.54% total return.

The S&P 500’s total return, in comparison, fell 2.54% in March.

“Investors in the past month have become more aware of the value proposition real estate offers relative to other segments of the stock market,” Nareit’s president and CEO, Steven Wechsler, said in a statement. “The REIT industry is continuing to generate earnings and dividends growth.”

Wechsler noted that occupancy rates have reached record highs and leverage is at its lowest level in more than two decades, equipping REITs to continue delivering earnings growth in a rising interest rate environment.

BMO Capital Markets analyst John Kim told Nareit that REITs had found favor late in March as investors viewed the sector as less volatile than other parts of the broader market, particularly the technology sector.

Kim said investor perception that the yield on the 10-year Treasury note had now stabilized also supported REIT performance.

In the first quarter, the total returns of the FTSE Nareit All REITs Index and the FTSE Nareit Equity REITs Index fell 6.66%, while the FTSE Nareit Mortgage REITs Index was down 4.06%. The total return of the S&P 500 fell 0.76% in the January-to-March period.

In 2017, mREITs topped the U.S. REIT market with a total return of 19.8%.

Equity and mREITs Performance

Apartment REITs posted a 7.39% gain in March to lead the REIT market, according to the report.

Matt Kopsky, an analyst at Edward Jones, told Nareit that a few apartment REITs had reported favorable trends for the first two months of the year, helping the group overall. Kopsky said continued construction delays to start the year may smooth out new deliveries in 2018.

These other equity REIT market segments also outperformed the FTSE Nareit All Equity REITs Index:

  • Data centers, up 6.35%
  • Health care, up 5.89%
  • Free-standing retail, up 5.12%
  • Manufactured homes, up 5.05%
  • Lodging/resorts, up 4.63%
  • Industrial, up 4.59%
  • Single-family homes, up 4.59%
  • Self-storage, up 4.36%
  • Infrastructure, up 3.75%

Among mortgage REITs, home financing mREITs were up 7.29% in March, and commercial financing REITs climbed 4.46%.

Three REIT market segments delivered total returns that outperformed the S&P 500’s 13.99% on a one-year trailing bases: infrastructure, up  22.27%; industrial, up 17.33%; and manufactured homes, up 16.07%.

Income investors enjoyed impressive dividend yields at the end of March: FTSE Nareit Mortgage REITs Index, 10.47%; home financing REITs, 11.33%; and commercial financing REITs. 8.08%.

The FTSE Nareit All REITs Index’s 4.59% yield and the FTSE Nareit All Equity REITs Index’s 4.27% yield significantly outpaced the 2% dividend yield of the S&P 500.

These equity REIT market segments had dividend yields that exceeded that of the FTSE Nareit All Equity REITs Index’s at the end of March:

  • Specialty, 34%
  • Health care, 63%
  • Diversified, 63%
  • Lodging/resorts, 56%
  • Shopping centers, 48%
  • Free-standing retail, 45%
  • Regional malls, 26%

Nareit reported that public listed REITs paid out some $53.2 billion in dividends last year, while public non-listed REITs paid out an additional $4.3 billion.

Market Overview

According to the report, the REIT industry has maintained a very low leverage level so far in 2018, with a debt ratio of 31.7% for the FTSE Nareit All Equity REITs Index, in line with the index’s 32% debt ratio at the same time last year.

The report said REITs raised $15 billion in public capital markets in the first quarter — including $2.7 billion in three IPOs, $3.5 billion in secondary equity and $8.8 billion in unsecured debt — down from $23 billion raised in public markets in the 2017 first quarter.

REITs have continued to use proceeds from bond offerings mainly to replace debt issued earlier with lower-cost, longer-term debt, Nareit said. REITs have locked in low interest rates until well into the 2020s, with the weighted average maturity of their debt at 75.1 months at the end of last year.

The equity market capitalization of the 226 REITs in the FTSE Nareit All REITs Index on March 31 was $1.1 trillion, approximately the same for the 224 REITs in the index on the same date last year.

At the end of March, the equity market capitalization of the 169 REITs in the FTSE Nareit All Equity REITs Index was $986.8 billion, up from $984.5 billion for the 167 REITs that made up the index at the same time last year.

According to the report, 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 Commercial Real Estate Market

Listed real estate also delivered gains for investors in most regions around the world in March, according to Nareit.

The FTSE EPRA/Nareit Global Real Estate Index delivered a 2.3% total return, calculated in U.S. dollars. The index’s 478 companies have a combined equity market capitalization of $1.6 trillion, about 71% of which is from REITs.

The index’s European segment led its performance in March with a 4.5% total return, followed by the Americas segment with a 3.6% gain and Middle East/Africa with a gain of 1%. The Asia/Pacific segment was down 0.56%.

For the first three months of 2018, the global index’s total return declined 3.4%. The Middle East/Africa segment gained 6.2% and Asia/Pacific 0.8%, while Europe was down 0.8% and the Americas segment was down 7.2%.

— Check out Warren Buffett’s 10 Nuggets of Investing Wisdom: Berkshire Letter 2018 on ThinkAdvisor.