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US REITs underperform S&P 500 in first quarter of 2017

The SNL U.S. REIT Equity index generated a 2.5% total return during the first quarter of 2017, underperforming the S&P 500's 6.1% return.

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REITs underperformed the S&P 500 over the last year as well. The SNL U.S. REIT Equity index generated a 5.3% total return, compared to the S&P 500's 17.2% return.

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Healthcare REITs were the only major sector to top the S&P 500 during the quarter with a 6.9% market-cap-weighted total return. Eighteen out of the 21 publicly traded U.S. healthcare REITs posted positive returns during the quarter, and new entrant Quality Care Properties Inc., which completed its spinoff from HCP Inc. on Oct. 31, 2016, posted the highest total return of the group, at 21.7% for the quarter.

On the flip side, the retail sector was the poorest performer in the quarter, with a total return of negative 4.7%. During the quarter, several large retail tenants announced store closures, including Macy's, Sears and J.C. Penney. As of March 31, retail REITs traded at a 13.6% market-cap-weighted discount to NAV.

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Single-family rental REIT Altisource Residential Corp. was the top-performing U.S. REIT, posting a 39.5% total return for the first quarter. During 2016, the company drastically grew its rental portfolio to 8,603 homes, up from 2,732 at the end of 2015. During the first quarter of 2017, the company's acquisitive trend continued, with the company entering into a nonbinding letter of intent to purchase up to an additional 3,500 rental homes from entities sponsored by Amherst.

In addition to Altisource, three other single-family rental REITs outperformed both the S&P 500 and SNL U.S. REIT Equity indexes. Silver Bay Realty Trust Corp., which announced an agreed-upon sale to Tricon Capital Group Inc. on Feb. 27, saw a 26.0% return for the quarter. Colony Starwood Homes and American Homes 4 Rent generated total returns for the quarter of 18.6% and 9.7%, respectively, while new entrant Invitation Homes Inc. saw a 9.1% price increase during the quarter over its Feb. 2 IPO price of $20.

Private-prison stocks rebounded after the election of President Donald Trump. The day after the election, GEO Group Inc.'s share price jumped 21.3%, and CoreCivic Inc.'s price surged 43.1%. The two prison REITs generated total returns of 31.1% and 30.2%, respectively. In August of 2016, prison REIT stocks plunged following the U.S. Department of Justice's announcement that it planned to end the use of private prisons.

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At the other end of the spectrum, retail REITs were heavily represented among the bottom performers for the quarter, taking 15 of the bottom 25 slots. Cedar Realty Trust Inc. ended the quarter at the bottom of the group, generating a negative 22.5% return over the quarter. Other large drops for the retail group included Pennsylvania Real Estate Investment Trust and DDR Corp., posting negative 19.1% and negative 16.7% returns, respectively.

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Use SNL's Worldwide Real Estate Total Return Analysis excel template to calculate total returns across a specific time period for a chosen set of companies. Other templates are available in SNL's Template Library.