The stock market has performed quite well in 2018, with the S&P 500 up by about 18%. However, not all sectors have done well. The real estate sector has been a laggard, with the Dow Jones Equity REIT Index up by just 4.5% in 2017, and many big-name REITs are in the red for the year.
However, there have been some bright spots in the sector as well. Here are the three highest-performing equity REITs so far in 2017, and why each one has had such a great year.
Data source: TD Ameritrade . Prices and YTD performance as of 12/7/17. Only REITs listed on the NYSE or NASDAQ with market capitalizations over $500 million were considered.
SBA Communications
The best-performing REIT of 2017 so far has been SBA Communications, and by a significant margin. SBA owns and operates wireless communications infrastructure, such as cell towers, located throughout the United States, as well as Central and South America.
A look at the company's recent results shows why the stock has performed so well. AFFO (adjusted funds from operations, the REIT version of "earnings" ) is up by 14% year over year, and SBA also generated strong revenue and income growth.
However, the real story is about the future. SBA has stated that it is well on track to achieve its intermediate-term goal of $10 in annual AFFO by 2020, which would be a 43% increase in just over two years. In addition, the company has done a strong job of under-promising and over-delivering. SBA has increased its full-year outlook in every single quarterly report this year.
Data source: SBA Communications.
CoreSite Realty
The smallest REIT on this list, CoreSite Realty, is a data-center REIT. Essentially, the company owns and operates facilities where other companies house servers and networking equipment.
To give you an idea of the type of companies who lease space in data centers, Cisco Systems , IBM , Disney , AT&T , Amazon.com , and Samsung are all among CoreSite's tenant roster, which reads like a Who's Who of major tech and retail companies.
Simply put, the reason for the strong performance is that the global need for secure and reliable data storage is skyrocketing, and data centers as a group have been a big beneficiary of this trend. And CoreSite has grown faster than most. Since 2011, the company's revenue has grown at an 18% annualized rate, funds from operations per share have roughly quadrupled, and its dividend has climbed about 600% higher. http://www.coresite.com/investors/coresite-information/investor-presentations
American Tower
After a monster year in 2017, American Tower is now the largest REIT in the market. In business terms, American Tower is similar to SBA Communications, in that the company owns and operates communications infrastructure.
However, American Tower is roughly three times the size of SBA Communications, with about 149,000 communications towers in its portfolio. While SBA is mainly focused on the U.S. and its territories, about 72% of American Tower's communications towers are internationally located, with a particularly large presence in India and Brazil.
The rapid increase in connected devices and a growing demand for data usage have combined to make an attractive environment for towers. And just as SBA Communications is optimistic about its ability to grow, so is American Tower. In fact, Cisco estimates that overall mobile data traffic will grow at a 35% annualized rate through 2021, which should translate to a sustained increase in demand for years to come. http://www.americantower.com/Assets/uploads/files/PDFs/vendor-relations/investor-relations/2017/american-tower-overview-q3-2017.pdf
A big year for tech-oriented real estate
You may be noticing a trend here. While real estate in general didn't have a great year, real estate investment trusts with a tech-oriented property type performed quite well. This makes sense, given the exploding need for data transmission and storage in society, which could continue to drive these REITs higher for years to come.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Matthew Frankel owns shares of AT&T. The Motley Fool owns shares of and recommends Amazon, American Tower, and Walt Disney. The Motley Fool has the following options: short April 2018 $130 calls on American Tower and long January 2019 $80 calls on American Tower. The Motley Fool recommends Cisco Systems. The Motley Fool has a disclosure policy .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
