Wilshire Income-Oriented Retirement Planning Study
New research from Wilshire Funds Management, sponsored by NAREIT and based on 40 years of investment return data, showed that adding a range of high income-generating assets (including REITs) to a traditional retirement-stage portfolio could boost income returns by nearly 40 percent, while providing comparable total returns and no increase in risk. Wilshire’s research is based on a variation of the Mean-Variance Optimization (MVO) method for portfolio modelling called Income Oriented Mean Variance Optimization (IOMVO). Wilshire found that a traditional MVO-modelled portfolio that delivered a 2.37 percent annual income return and a 5.37 percent annual total return with an 8 percent level of portfolio risk could be enhanced with IOMVO modelling to deliver a greater annual income return of 3.25 percent and a comparable 5.27 percent annual total return with the same 8 percent level of risk.
CEM Benchmarking Defined Benefit Pension Fund Research
Listed Equity REITs were the top-performing asset in this study of investment performance and allocations at 200 of the largest public and private sector pension plans in the U.S with over $3 trillion in combined assets. Pension fund research firm CEM Benchmarking found that over the 1998-2014 study period, REITs delivered an average annual net total return of 11.95 percent, the highest of all 12 aggregate asset classes surveyed, as well as the highest Sharpe ratio of all equity asset classes at 0.45. In comparison, Unlisted Real Estate delivered an average annual net return of 8.59 percent and a Sharpe ratio of 0.32. The study introduces a new process to correct for the reporting lag of illiquid assets, enabling accurate comparisons of the returns, volatilities and correlations of all assets analyzed.
Economic Contribution of REITs in the United States
The National Association of Real Estate Investment Trusts® (NAREIT) commissioned EY to estimate the current economic contribution of all U.S. REITs (including public listed, public non-listed, and private REITs) in the United States. Today, REITs in the United States own nearly $3 trillion of gross real estate assets and public listed equity REIT portfolios included more than 190,000 properties at year-end 2014. The report is based on data from IRS, SEC, and other sources and informs policymakers, investors and others who want to understand the breadth and scope of REIT activities. The scope of REIT activities that contribute to economic output include direct employment, payment of interest income and dividends, and investments in new construction and ongoing capital expenditures associated with over 190 thousand properties across the US. Including direct, indirect and induced contributions, we estimate the total economic contribution of U.S. REITs in 2014 to be 1.8 million full-time equivalent (FTE) jobs and $107.5 billion of labor income.
MSA Geographic Allocations, Property Selection, and Performance Attribution in Public and Private Real Estate Market Returns
by David C. Ling (University of Florida), Andy Naranjo (University of Florida), and Benjamin Scheick (Villanova University)
Noting previous research indicating that total returns from stock exchange-traded equity REITs have outpaced those produced by institutional and private-equity real estate investors after controlling for differences in leverage and in property-type mix, the authors ask whether the "REIT premium" might arise from differences in the allocation of capital across metropolitan areas. Comparing data from REITs and from the National Council of Real Estate Investment Fiduciaries (NCREIF), they indeed find significant differences in geographic allocation. They also find, however, that differences in metro-area selection account for only a small share of outperformance by REITs, with selection of individual properties within each metro area playing a much more important role.
- Download the levered and unlevered Equity REIT return data used in this report.
Academic Research: REITs Outperformed Private Real Estate Over 1994-2012
This research, sponsored by NAREIT and conducted by two University of Florida economists, finds that exchange-traded equity REITs provided returns 0.49% greater per year, on average, compared to equivalent non-REIT real estate investments. The research also finds that REIT returns predicted private real estate returns by reacting more quickly to market conditions, thereby serving as “a fundamental information transmission channel.”