U.S. REITs Rose Nearly 28% in '10, Almost Double S&P 500

REITs outperformed the major markets, with only the Russell 2000 keeping pace

The National Association of Real Estate Investment Trusts said Wednesday that U.S. REITs outperformed the broader equity markets in 2010.

The FTSE NAREIT All-Equity REITs Index had a total return of 27.95% last year, while the FTSE NAREIT All-REITs Index gained 27.58%.

“Access to capital, as well as liquidity, transparency and business models and management teams aligned with shareholder interests, continue to be the basis for REITs’ excellent long-term performance and appeal to investors,” said NAREIT President and CEO Steven A. Wechsler, in a news release.

In 2010, the Dow Jones Industrial Average rose 11.02%; the S&P 500 returned 15.06%, the NASDAQ Composite 16.91% and the Russell 2000 26.85%.

In 2009, the FTSE NAREIT All-Equity REITs Index rose gains of 27.99% and the FTSE NAREIT All-REITs Index improved 27.45%.

On a long-term basis, the 10-year compound annual total return of the FTSE NAREIT All-Equity REITs Index was 10.76% vs. 1.41% for the S&P 500. Plus, equity REITs outperformed the S&P 500 over the past 1-, 3-, 5-, 10-, 15-, 20-, 25-, 30- and 35-year periods and delivered double-digit gains in seven of those nine periods.

All sectors of the U.S. REIT market had positive turns in 2010, and all but two sectors produced double-digit returns. Top-performing industry segments for the year were apartments, up 47.04%; lodging/resorts, up 42.77%; and commercial-mortgage financing, up 41.99%.

Retail REITs rose 33.41%, industrial REITs 18.89% and office REITs 18.41%.

The U.S. listed property market outperformed other segments of the global listed property market in 2010.

Capital Issues

At year-end 2010, the equity market capitalization of the U.S REIT industry had increased to $389 billion, up 44% percent from $271 billion at the end of 2009, trailing that of the peak year of 2006, when equity market capitalization reached $438 billion at year-end.

REITs also continued to raise public equity and debt at a rapid pace in 2010, according to NAREIT.

They raised $47.5 billion in new capital for the year, including $26.3 billion in secondary equity common and preferred share offerings; $2 billion in nine IPOs; and $19.2 billion in unsecured debt offerings.

“In a commercial real-estate marketplace in which many private owners have continued to find it difficult to raise capital to restructure highly leveraged balance sheets, REITs again demonstrated their cost-effective access to capital through the public markets,” explained Wechsler.

The amount of capital raised through the public markets last year topped the $34.7 billion raised in 2009 and was the second largest on an annual basis in the industry’s history, following the $49 billion raised in 2006.

REITs have used the capital raised to pay down debt and begin to make strategic acquisitions, according to the industry group. The industry’s debt ratio as of September 30, 2010, was 41.4%, down from 66.3% at the end of February 2009, the approximate trough of the last REIT return cycle.

REIT share prices generally have risen since March of 2009, fueled by the recapitalization of the industry, according to NAREIT.

“With moderate leverage and strong cash positions, REITs are entering 2011 well prepared to expand the strategic acquisition activity that began in 2009,” Wechsler said.

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