03/04/2010 | By Allen Kenney
U.S. REIT returns bounced back in February from the previous month's dip, as the FTSE NAREIT All REIT Index gained 5.06 percent.
February's performance offset January's 4.68 percent loss. The index was up approximately 1 percent in 2010 as of March 3.
In February, REITs bested the broader market measures of the S&P 500, Russell 2000, Dow Jones Industrials and NASDAQ Composite, which saw returns as high as 4.50 percent.
Paul Adornato, a REIT analyst with BMO Capital Markets, attributed February's strong performance to the return of a "business as usual" attitude in the industry, a stark contrast to the "singular focus" on liquidity that dominated 2009.
"In February, REITs were well into reporting season. While fundamentals remain weak in most property types and in most regions of the country—as expected—REITs in general showed they were able to weather the financial turmoil of the last year and were making plans to go on the offensive," he said.
Acquisitions are also having an impact on REIT returns as investors flock to sectors showing positive M&A activity, according to NAREIT Vice President of Research and Industry Information Brad Case. Case highlighted the fact that retail REITs were up more than 10 percent in February, while apartment REITs gained 8 percent and lodging REITs rose 6 percent.
"Investors have been looking forward to the returns that REITs are going to be able to generate by acquiring high quality properties at good prices," Case said. Unlike private-sector companies, REITs do not have to put money to work within a particular time frame, which means they are less likely to overbid for an asset, he noted.
Overall, Adornato termed current valuations "fair," noting that they were generally in line with historical averages. As stability has returned to the industry, sector dynamics and individual companies' strategies are once again receiving greater attention, he said.
On the global front, the FTSE EPRA/NAREIT Global Real Estate Index rose 3.02 percent in February, as losses in the European countries were offset by stronger performance in the Americas, Asia and Africa.