REITs Cap Off Record-Setting Quarter

By Allen Kenney
The FTSE NAREIT All REIT Index finished the month of September up 6.37 percent, capping off a best-ever quarter in which the index gained 31.52 percent.
The third-quarter returns marked the second straight record-setting performance for the REIT market in what has been a volatile 2009. The All REIT Index gained 27.49 percent in the second quarter after falling 29.78 percent in the first.
Nem Marjanovic, an analyst with Cornerstone Real Estate Advisers LLC, attributed the strong September and third quarter to a number of factors. From a macroeconomic perspective, Marjanovic pointed out that economic indicators had shown better than expected results, contributing to a boost in overall investor confidence. More specifically, he noted that investors had responded positively to REITs' growing access to attractively priced unsecured debt.
Richard Anderson, a REIT analyst with BMO Capital Markets, said the past six months have cleared up the uncertainty plaguing the industry late in 2008. In particular, REITs' efforts to shore up their balance sheets and generate liquidity boosted their prospects with investors, according to Anderson.
"We think a lot of what has happened to REIT stocks over the past several months has been a function of the realization that REITs as an industry are not going away," Anderson said. "These companies are going to weather this storm."
Going forward, Marjanovic suggested investors keep a close watch on REITs' upcoming earnings reports for the third quarter to help determine if the recent rally in share prices has legs. Additionally, Marjanovic said general economic conditions will continue to have a strong influence on the REIT market's performance through the end of the year.
"If we witness some indication of stability in operating fundamentals coupled with a sense of optimism for 2010, REITs may continue their upward price movement," he said.
Marjanovic also predicted that a flurry of asset acquisitions in the near future that would give the market better insight into the accuracy of current REIT valuations.