REITs outperform Barclays expectations, long term outlook positive
Real estate investment trusts (REITs) outperformed analyst expectations in the first quarter of 2010, according to a weekly report released today by Barclays Capital. Week-over-week, the National Association of Realtors' (NAR) composite REIT return index dropped 0.9% to 3,153.3. Despite the decrease, the index is 0.9% higher than one month ago and 33.7% higher than one year ago. The composite return index year-to-date is up 17.2% from 2,690.1 for the same period last year. In the commercial REIT sector, year-over-year returns for hotels were the greatest, up 40.5%, followed by offices, up 34.1%, office and industrial mixed properties, up 12.2%, diversified/other properties, up 11.5% and industrial properties, up 5.7%. Returns for all branches decreased over one week, except for hotels, up 1.3%. All branches showed increased return over a three month period, except for hotels, down 1.4%. In a note closing out last week's REIT activity, the Barclays analysts note the NAREIT Equity Index decreased 1.1% on a total return basis to 7,695 from 7,778 Year to date, the NAREIT Equity Index is up 17.9%. By way of comparison, the S&P and Dow were up last week 0.4%, and 1.8%, respectively, and Nasdaq down 1.5%, on a total return basis; the S&P 500 Financials Index closed up 0.6%. In the residential REIT sector, multifamily properties had the greatest rate of return after one year, up 59.5%. Manufactured home returns after one year are up 40% and specialty housing returns are up 28.6%. Real estate mutual fund assets as of August 2010 increased to a total of $74,396, up 26.9% since the beginning of the year. The year-to-date mutual fund asset total is up 37% from assets in 2009, 86.7% from 2008 and 21.8% from 2007. Barclays expects that REIT average funds from operation (FFO) per share growth will increase by the end of 2010 to 5.6% and again to 11.2% by the end of 2011. The current rate is negative 12.6%. The firm anticipates the FFO growth rate per share to level out with Standard & Poors' operating earnings growth expectation in 2011, which is 12.9%. Write to Christine Ricciardi.