The REIT Formula for Success

3/11/2013 | By W. Edward Walter

Published in the March/April 2013 issue of REIT magazine.

Listed REITs continued to raise capital from the public equity and debt markets at a brisk pace in the first two months of 2013, continuing a trend that began with the start of the REIT industry’s market recovery in the spring of 2009.

Last year, REITs raised a record amount of capital – $73.3 billion from the public markets, including a record $47.6 billion in equity.  The total capital raised easily surpassed the $51.3 billion raised in 2011, the prior record year for capital raising.  From the beginning of 2009 through 2012, public capital raised by listed REITs has totaled an impressive $206.7 billion.

The volume of funds REITs have raised in the past four years has prompted media speculation about how REITs have been using the money, including speculation that they have been building “war chests” for acquisitions.

To shed light on this issue, NAREIT conducted an analysis of what REITs have done with the money they have raised.  The results of that analysis provide important insights into the way REITs are managed and how they have built their sustained track record of performance.

NAREIT evaluated balance sheet and securities offerings data for 92 listed REITs that had consistent information available for the period from the end of 2006, approximately the prior market peak, through the Great Financial Crisis and emerging recovery, up to the end of the third quarter of 2012.

Over this period, the companies raised $85 billion in equity, and their net issuances of debt added $59 billion in balance sheet debt, for a combined $144 billion in new equity and debt.  Over the same period, REITs total assets increased by $148 billion, $131 billion of which was reported as net investment in real estate.

REITs were buying new assets for their portfolios, taking advantage of a favorable period in the market price cycle.

So, REITs were buying new assets for their portfolios, taking advantage of a favorable period in the market price cycle.  And, they were financing their acquisitions primarily with equity.

Interestingly, cash plus short-term investments on balance sheets increased over the period by only $1.1 billion – hardly a war chest.  Essentially, these data tell us that REITs don’t need war chests because of their ongoing ability to access the capital markets.  There is no need to hold low-yielding cash on the balance sheet.

The data also show that REITs’ balance sheet leverage increased from 37 percent at the end of 2006 to 57 percent at the end of 2008, near the market trough, and has since fallen to 36 percent.  Consequently, at the same time that REITs were building their portfolios and financing their acquisitions by raising new equity and debt, they also were reducing their leverage.

The analysis makes a strong case for the REIT approach to real estate investment.  Liquidity and transparency, which enable access to public capital, combined with business models and management teams that put it to the best use, are the basis for REITs’ continuing record of performance and rewards to their shareholders.


President & CEO
Host Hotels & Resorts, Inc.


Other Features

Tim Naughton
The Durability of the REIT Approach to Real Estate Investment
As my term as 2017 NAREIT Chair draws to a close, I’m finding that my experiences in the past year have done nothing but reinforce my confidence in...
Tim Naughton
The Evolution of Sustainability in the REIT Industry
By its very nature, the real estate business has a significant environmental footprint. As long-term owners and investors, REITs and publicly traded...
The Importance of IR Outreach
Investor relations is a critical component to any publicly traded company. Over the years, REIT IR professionals have worked hard to ensure dedicated...
Entering a New Era for Tax Reform
For REITs, the beginning of President Donald J. Trump’s administration has touched off an important period in the policymaking process at the highest...
Tim Naughton
Unlocking Investment Benefits with REITs
Diversification. Performance. Liquidity. Transparency. Inflation protection. The nearly 60 years since REITs were created have demonstrated that all...
Tim Naughton
REITs With a View
As I begin my term as the 2017 NAREIT Chair, I’d like to take this opportunity to thank my predecessor, Ed Fritsch, for the hard work that he put in...
Ed Fritsch
What a Difference a Year Makes
During my tenure this year as NAREIT Chair, a number of notable developments occurred that should help shape and strengthen the REIT industry in the...
The Link Between Sustainability and Performance
A growing body of evidence tells us that companies with rigorous environmental, social and governance (ESG) programs outperform their peers. In 2015...
GICS Brings More Visibility to the REIT Industry
This issue of REIT magazine highlights the impending elevation of Real Estate to a new Headline Sector under the Global Industry Classification...
REITs Reshaping Communities
The day-to-day realities of managing a modern business—things like finance, branding and technological disruption—sometimes take attention away from...