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November REIT Returns Reflect Continued Uncertainty

12/04/2012 | By Carisa Chappell

November REIT Returns Reflect Continued Uncertainty

U.S. REIT stocks faced another dip in performance in November, but some industry analysts attribute that to continued uncertainty in the market place. The FTSE NAREIT U.S. Real Estate Index series showed that total returns of equity REITs were down 0.27 percent for the month, while all REITs were down 0.29 percent.

Alexander Goldfarb, managing director and senior REIT analyst with Sandler O'Neil and Partners L.P., said there has been discussion about selling in the market being tax-driven. He also said a number of companies in the broader market have announced special dividends or accelerated the payments of dividends.

"It's not a stretch to think that there has been quite a bit of uncertainty over the tax situation that's encouraging companies to declare special dividends this year and could also be inciting investors to sell winners, take gains and come back to the stocks next year," Goldfarb said.

While REITs are down for the third consecutive month, Brad Case, NAREIT's senior vice president of research and industry information, said REITs are still outperforming the broader market in 2012 so far. The lodging, self-storage and health care sectors were the strongest performers in November, posting gains of 2.03 percent, 2.14 percent and 1.37 percent respectively.

"That's especially interesting with respect to the lodging sector because that has been among the weakest performers year to date," Case said. "What that tells me is that investors have been concerned about increases in vacation and business travel, and during November they became a bit less concerned and a little bit more sanguine about the prospects or earnings growth going forward."

Mortgage REITs, which were down 3.36 percent and apartment REITs, which were down 2.96 percent, were the weakest performers in the REIT industry in November.

"Apartments have had a tough year," Goldfarb said.

Additionally, with the holiday shopping season in full swing, Case discussed retail REITs' performance. While retail REIT stocks did not see major movement in November overall, Case explained that investors were reassured by retail spending.

"Investors in retail REITs have gained nearly 24 percent over the year as a whole. What that tells us is that November wasn't a month of surprises for investors in retail REITs. They had been very happy for the prospects for retail REITs and retail real estate going forward," he said.

Goldfarb mentioned that talks of mergers and acquisitions picked up in November with the announcement of Avalon Bay (NYSE: AVB) and Equity Residential (NYSE: EQR) acquiring Archstone.

"Certainly the Archstone announcement last week capped off a discussion of M&A," he said. "The Archstone resolution, which is best for all parties, including Archstone, really highlights the fact that good management teams should not be afraid to sell and underperforming management teams hopefully face more pressure from investors to create value. If that means selling, then that's what they should do."