DID YOU KNOW:
Mortgage REITs have posted the highest three-year returns of any REIT sector?
[September/October 2003]
The impressive run real estate stocks have been on in recent years has been well documented in the financial media. From the end of 1999 to the end of 2002, the NAREIT Equity REIT Index posted a total return of 49 percent, while the S&P 500 Index declined 38 percent (see chart below). And the strong performance has continued this year. When the first seven months of 2003 are added to the period, equity REITs posted a total return of 79 percent, while the S&P 500 declined 29 percent.
While equity REITs as a whole have outperformed over the past three-plus years, mortgage REITs quietly were performing at another level. The NAREIT Mortgage REIT Index registered a total return of 170 percent for the three-year period ended 2002 and a whopping 265 percent from the end of 1999 through July 2003.
To be sure, the strong returns of mortgage REIT stocks come with appreciably higher volatility. From a longer-term perspective, five-year and 10-year average annual returns to equity REITs were 4.4 percent and 11.6 percent, respectively, while average annual returns to mortgage REITs for the same periods were 12.4 percent and 17.0 percent, respectively. To achieve those higher returns, mortgage REIT investors are accustomed to higher volatility. For the five-year and 10-year periods, the standard deviation of annual returns to equity REITs were 16.8 percent and 15.6 percent, respectively, whereas the standard deviation of annual returns to mortgage REITs for those same periods were 45.8 percent and 39.0 percent, respectively.
Total
Returns to REITs and the S&P 500
(in percent) |
| |
Equity REITs
|
Mortgage REITs |
S&P 500 |
| Total Return |
| 3-Year (1999–2002) |
49.5 |
169.6 |
-37.6 |
| Dec. 1999–May 2003 |
79.3 |
265.2 |
-29.0 |
| Average
Annual Returns |
| 5-Year (1997–2002) |
4.4 |
12.4 |
1.3 |
| 10-Year (1992–2002) |
11.6 |
17.0 |
11.2 |
| Standard
Deviation of Annual Returns |
| 5-Year (1997–2002) |
16.8 |
45.8 |
22.2 |
| 10-Year (1992–2002) |
15.6 |
39.0 |
20.8 |
| Source: NAREIT and S&P |
[Fast Fact]
STRONGLY PREFERRED
REITs raised just under $1.4 billion in preferred stock in the second quarter of 2003, according to NAREIT. The total was nearly as much as the previous four quarters combined and marked the industry’s highest quarterly total since the third quarter of 1999. There were 15 preferred stock offerings in the second quarter of 2003, up from five in the first quarter and seven a year ago.
