April 7, 2014
Message from the President
At the close of the year’s first quarter last week, returns of stock exchange-listed U.S. REITs were nearly five times greater than those of the broader equity market: an almost 9 percent total return for the FTSE NAREIT All REITs Index, compared with approximately 2 percent for the S&P 500. It was a sharp turnaround from the situation at the end of last year when listed REITs finished the quarter and the year with returns well below those of the S&P 500. At that time, many analysts were forecasting strong headwinds for REITs in 2014.
No one can predict accurately the market’s future performance, but we know from past experience that REITs’ performance over the long term has been competitive with that of the broader market. Over the 20-year period ended Mar. 31, the FTSE NAREIT All REITs Index produced a compound annual total return of 10.2 percent, compared with 9.5 percent for the S&P 500. So, solid long-term performance is one reason investors should strongly consider an allocation to REITs in their investment portfolios. But there are other reasons, as well.
One of them is diversification. As last year’s performance showed, REITs don’t move in lockstep with the equity market, which is why they are an effective diversifier in investment portfolios, providing the opportunity to reduce overall portfolio risk and improve overall portfolio returns.
Another reason to include an allocation to REITs is their strong, continuing income–an advantage for investors building portfolios as well as those who rely on their investment portfolios to help meet current needs. Approximately 60 percent of REIT total returns over the long term have come from dividends, and REITs rewarded their shareholders with $34 billion of dividends last year.
REITs also have proven to be one of the most effective hedges against inflation with a better track record than other equities, Treasury Inflation-Protected Securities or gold.
Markets go up and down, but the reasons to include REITs in an investment portfolio go beyond quarter-to-quarter performance. That is a message NAREIT’s Investor Outreach team takes to the investment community–every quarter, all year long.
Steven A. Wechsler
President and CEO
REITWise 2014 a Success
Approximately 1,200 attendees traveled to the Boca Raton Resort & Club in Boca Raton, Fla., for REITWise 2014: NAREIT's Law, Accounting & Finance Conference®.
The three-day "hands-on" conference offered 25 educational sessions providing the most current information on tax policies, accounting standards, Securities and Exchange Commission (SEC) regulations, risk management and other subjects. Representatives of the Internal Revenue Service (IRS), Financial Accounting Standards Board (FASB) and SEC participated to provide insights on tax issues, proposed accounting standards and SEC filing requirements.
Analysts and investment bankers also offered analysis on the climate for mergers and acquisitions, the outlook for initial public offerings and the possible impact of the Federal Reserve's tapering program on interest rates.
REITWise 2014: Andrew Richard (center), managing director with Credit Suisse, moderated a panel on the state of the capital markets. Other participants included (from left to right): Mark Howard-Johnson, managing director, BlackRock; Steven Sakwa, senior managing director, ISI Group; Lisa Sarajian, managing director, Standard & Poor's Rating Services; Timothy Schoen, executive vice president and CFO, HCP, Inc. (NYSE: HCP).
REITWise 2014: The Government Relations Committee Meeting featured a roundtable with three IRS officials (from left to right): Andrea Hoffenson, assistant to the branch chief, Financial Institutions & Products; David Silber, acting deputy associate chief counsel, Financial Institutions & Products; Jonathan Silver, assistant to the branch chief, Financial Institutions & Products.
REITWise 2014: Eric Kevorkian (far left), senior vice president and senior corporate counsel for Boston Properties, Inc. (NYSE: BXP), moderated an SEC session focused on securities laws issues. Panelists included (from left to right): Robert DelPriore, executive vice president and general counsel, MAA (NYSE: MAA); Judith Fryer, shareholder, Greenberg Traurig LLP; Yoel Kranz, partner, Goodwin Procter LLP.
REITWise 2014: Joseph Howe, III (far left), partner with Arnold & Porter, LLP, led a panel on REITs investing outside of the United States. Participants included (from left to right): Jeff Miller, executive vice president for operations and general counsel, Health Care REIT, Inc. (NYSE: HCN); Brian McDade, vice president for capital markets, Simon Property Group, Inc. (NYSE: SPG); Edward Nekritz, chief legal officer and general counsel, Prologis, Inc. (NYSE: PLD); Bartjan Zoetmulder, partner, Loyens & Loeff N.V.
REITWise 2014: A "potpourri" of tax topics were on the agenda of a session moderated by Regency Centers Corp. (NYSE: REG) Senior Vice President Kathy Miller (far left). Miller was joined on the panel by (from left to right): David Levy, partner, Skadden, Arps, Slate, Meagher & Flom LLP; Charles Temkin, director, Deloitte LLP; Louis Weller, of counsel, Bryan Cave; Michael Brody, partner, Latham & Watkins LLP.
REITWise 2014: Hans Nordby, managing director with PPR, A CoStar Company, gave a presentation on the current and future real estate markets.
(Contact: Katelyn Rowland at firstname.lastname@example.org)
REIT.com Video: John Divers, Community Development Trust
John Divers, COO and CFO of the Community Development Trust (CDT), joined REIT.com for a video interview during REITWise 2014: NAREIT’s Law, Accounting and Finance Conference held in Boca Raton, Fla.
Founded in 1998, New York City-based CDT is a private, hybrid REIT that is active on the debt and equity side of affordable housing projects.
Divers was asked about CDT’s capital-raising activities, which were particularly strong last year, and the outlook for future transactions.
Divers noted that as a private REIT, capital raising has been important to CDT since its inception. CDT has carried out a variety of capital raises in the $40 million to $50 million range. It has held multiple common stock raises and also a convertible preferred stock raise, he said. At present, CDT is in the middle of a rate preferred stock raise, Divers added.
(Contact: Matt Bechard at email@example.com)
U.S. REITs Outperform S&P 500 in First Quarter
Returns of stock exchange-listed U.S. REITs were nearly five times greater than those of the broader equity market in the first quarter of 2014.
The FTSE NAREIT All REITs Index gained 8.6 percent on a total return basis in the first quarter. The FTSE NAREIT All Equity REITs Index was up 8.5 percent, and the FTSE NAREIT Mortgage REITs Index gained 11.2 percent. In comparison, the S&P 500 was up 1.8 percent on a total return basis in the first quarter.
Almost all segments of the listed U.S. REIT market showed strong investment gains in the quarter, with approximately half delivering double-digit returns. The apartment segment was the top performer with a 13.8 percent total return. The apartment sector was closely followed by the self-storage sector, which was up 13.1 percent. Home financing mortgage REITs were up 12.4 percent; the free-standing retail segment was up 11.4 percent; industrial REITs gained 11.3 percent; and the office sector was up 11.2 percent.
(Contact: Ron Kuykendall at firstname.lastname@example.org)
Investor Outreach Team Holds More Than 50 Meetings in March
NAREIT’s Investor Outreach team held direct meetings in March with a diverse group of 48 investment organizations controlling more than $12 trillion in assets in the institutional investment market.
A total of 54 meetings were held with organizations across all targeted investment cohorts, including: 20 with prominent domestic pension plans representing more than $362 billion in assets; six with investment consultants with assets under advisement of $3 trillion; and 23 with investment managers sponsoring global and domestic products for the institutional and retail investor markets that have a combined $9 trillion in assets under management. Another five meetings were held with other organizations and associations active in investment management and the retirement industry.
NAREIT’s outreach meetings with investment managers provide significant opportunities to influence REIT allocations within the broad asset allocation products sold through multiple channels, including through institutional defined contribution (DC) plan provider platforms as well as through firms whose products are distributed through financial advisor networks. Nineteen of the meetings held with investment managers during March were with managers active in both the $5.8 trillion DC and $6.2 trillion IRA markets, and NAREIT’s meetings and ongoing relationships with these leading firms provide the Investor Outreach team with the opportunity to influence two-thirds of the entire $18.8 trillion retirement market.
Through the end of March, NAREIT has conducted 108 meetings with many of the largest and most influential investment organizations within the institutional investment marketplace. Collectively, these entities represent more than $22 trillion in assets under management or advisement.
NAREIT has also been active on the academic and institutional investment conference circuit during the first quarter of 2014, participating in seven events.
(Contact: Abby McCarthy at email@example.com)
NAREIT, Member Companies Join Push for TRIA Extension
NAREIT and nearly 50 of its member companies joined a wide-ranging effort led by the U.S. Chamber of Commerce to urge Congress to extend the Terrorism Risk Insurance Act (TRIA).
TRIA is currently set to expire at the end of 2014. Hundreds of industry groups and firms signed a letter sent on April 2 to Congress that stressed extending TRIA is necessary to promote certainty in the insurance marketplace.
“Without the backstop that TRIA provides, the private insurance market would simply be unable to provide adequate levels of terrorism risk insurance,” the organizations wrote. “Maintaining a workable federal terrorism insurance mechanism is vital for our nation’s economic security, and without adequate coverage, our ability to mitigate further economic fallout in the event of an attack would be greatly impaired.”
Additionally, Kristen N. Pate, associate general counsel for General Growth Properties, Inc. (NYSE: GGP), is set to speak at a policy summit on TRIA organized by the National Journal. The event is scheduled to take place on April 14 at Chicago’s Soldier Field.
(Contact: Robert Dibblee at firstname.lastname@example.org)
NAREIT Participates in ARES Research Meeting
NAREIT participated in the 30th Annual American Real Estate Society (ARES) Meeting held last week in San Diego. ARES members include university faculty as well as real estate investors and other practitioners from the real estate industry, both in the United States and around the world. ARES is dedicated to producing and disseminating research and knowledge related to real estate decision making, real estate investment and the functioning of real estate markets. NAREIT is a Regent Sponsor of ARES and has worked with many of its members to develop and support research focused on real estate investment through REITs.
As the REIT industry has grown and developed over recent decades, the growing record of publicly available information, including investment performance data, capital raising activities, mergers and acquisitions and company operations have fueled an appreciable increase in REIT research and drawn growing attention to the REIT investment proposition. At the San Diego meeting, more than 30 research studies focused on REITs and listed property companies were presented, including papers focused on at-the-market equity offerings, equity market liquidity, corporate governance, the use of listed REITs in defined contribution plans, credit ratings, debt covenants and many other topics.
NAREIT works closely with ARES and its members to develop real estate research that supports the NAREIT Investor Outreach team and effectively communicates the benefits of REIT-based real estate investment to investors, policymakers, financial advisors and the media.
(Contact: Mike Grupe at email@example.com)
IRS to Update Real Property Definition
David Silber, IRS deputy associate chief counsel for financial institutions and products, announced on April 2 that the government has initiated a new project to update the definition of real property.
Essentially, the new guidance would consolidate the IRS’s private ruling policy in defining what constitutes real property for REIT tests.
Silber made the announcement at REITWise 2014.
(Contact: Dara Bernstein at firstname.lastname@example.org)
NAREIT Welcomes New Corporate Member
NAREIT is pleased to welcome Cottonwood Residential, Inc. as its newest corporate member. Cottonwood Residential is a private, self-advised equity REIT that is focused solely on the ownership and management of multifamily properties in 25 states.
Based in Salt Lake City, Cottonwood Residential’s president and chairman is Chad Christensen and its CEO is Daniel Shaeffer.
(Contact: Bonnie Gottlieb at email@example.com)