WASHINGTON, DC—In what otherwise was a “very representative” year for publicly traded REITs, one metric was exceptional. That was the tally of debt and equity that REITs raised in the public markets last year. Nareit said Tuesday that at $92.14 billion, 2017's equity raises were 20% greater than the previous high water mark of $77 billion established in 2013.
Equity raised in '17 included $2.92 billion from nine initial public offerings, $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 '17, surpassing the previous record of $37.26 billion that was set just a year earlier.
REITs used the proceeds from the bond offerings primarily to replace previously issued debt. The industry's debt ratio (total debt divided by total market capitalization) declined slightly to 31.7% at year's end, compared to 32.1% in 2016.
Mortgage REITs led the performance of the overall REIT market last year, with the FTSE Nareit Mortgage REITs Index delivering a 19.79% total return for the year. That's in spite of a negative 0.21% total return for the fourth quarter.
The FTSE Nareit All Equity REITs Index delivered a total return of 8.67% for '17, with a 2.48% gain for Q4.The broader FTSE Nareit All REITs Index, containing both equity and mREITs, had a total return of 9.27% for the year and a quarterly gain of 2.37%. The S&P 500's total return for 2017 was 21.83%, with a gain of 6.64% for Q4.
While clearly that comparison shows REITs underperforming the S&P 500, Nareit president and CEO Steven A. Wechsler notes that “the performance of the total US REIT market last year, as measured by the FTSE Nareit All REITs Index's 9.27% total return, is very representative of the market's long-term performance. Since the beginning of 1972, when the index was created, its average annual return has been 9.72%. Over the longer term, REITs have been a remarkably consistent investment, delivering solid long-term performance and consistent income for their shareholders.”
Furthermore, Wechsler noted that the broader equity market's performance was driven by large cap growth stocks last year. Specifically, companies in the information technology industry ruled the roost, with the S&P 500 Information Technology Sector returning an exceptional 38.83% for '17.
And nearly half of all equity REIT market segments had double-digit total returns last year, Nareit says. The Infrastructure sector, whose largest constituents are cell tower REITs, led the equity REIT market's performance with a 35.38% total return.
Data center REITs delivered a 28.43% return for the year, followed by manufactured home communities with a 21.93% gain, timber REITs with 21.92%, industrial REITs with 20.58%, single-family home REITs with 17.49% and specialty REITs with 13.22%. Among mREITs, the home financing REITs segment delivered a 23.33% total return for 2017, while commercial Financing REITs gained 9.07%.
One area where REITs bested the broader equity market was in dividend yields. Home financing mREITs boasted dividend yields averaging 10.57% at year's end, while commercial financing mREIts provided a 7.68% yield. For equity REITs, the average was 3.94%, with several property sectors exceeding that average. In comparison, the dividend yield of the S&P 500 Index at year-end was 1.86%.
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Paul Bubny
Paul Bubny is managing editor of Real Estate Forum and GlobeSt.com. He has been reporting on business since 1988 and on commercial real estate since 2007. He is based at ALM Real Estate Media Group's offices in New York City.
