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REIT Returns Flat Ahead of Election

11/05/2012 | By Carisa Chappell

With the looming national elections set to come to a close, the REIT market held steady in October. The FTSE NAREIT All REIT Total Returns Index was down one-third of a percent for the month. That bested the broader U.S. stock market, with the S&P 500 falling 1.85 percent in October.

Brad Case, NAREIT's senior vice president of research and industry information, attributed the flat performance to general economic uncertainty.

"Uncertainty is a tax on investors' return," Case said. "Investors don't like it."

Alexander Goldfarb, managing director and senior REIT analyst with Sandler O'Neill and Partners L.P., said broader concerns about the economy weighed on REITs in October.

"In October everyone starts focusing on the election, the fiscal cliff, et cetera, which sort of flat-lined the REITs along with the broader market. There was not much activity," he said.

Goldfarb noted that while REITs were flat in October, they have still had a strong showing in 2012. Through Nov. 2, the FTSE NAREIT All REIT Total Returns Index was up 17.86 percent, while the S&P 500 was up 14.47 percent.

"From an investor's standpoint, people have had a fairly decent year," Goldfarb said.

Case said markets typically reach a standstill immediately prior to an election, so the performance of the REIT market shouldn't come as a surprise..

One bright spot in October was the apartment sector, according to Goldfarb. After slipping nearly 4 percent in September, apartment REITs had total returns of 0.56 percent in October.

"The apartment sector came to life over the past month," he said. "I would attribute that to their underperformance year-to-date. Therefore, people now look at the group, given their discount valuations and the fact that they're still going to put up some very strong absolute numbers next year."

Goldfarb added that new supply of apartment units won't come online until 2014 "at the earliest," meaning that the supply-demand dynamic should remain favorable for apartment owners.