Property values nationwide increased 0.4 percent in February as measured by the FTSE NAREIT PureProperty Index Series.
Brad Case, NAREIT’s senior vice president for research and industry information, noted that February was marked by “a marginal increase in property values, even though we saw a marginal decline in total returns for REITs.” The total returns of the FTSE/NAREIT All REIT Index fell 0.3 percent in February.
Launched last year, the PureProperty Index Series provides a daily measure of U.S. real estate price and total returns at the level of both property (unlevered) and equity investments. The index series infers changes in the values of properties owned by stock exchange-listed U.S. Equity REITs by observing changes in stock prices and correcting for the effect of each REIT’s capital structure.
Case said the reason for the disconnect between REIT returns and property values is that REITs borrow money to invest in their properties and have to make payments on that money. In February, he noted, the increase in property values was not sufficient to account for the payments REITs had to make on their debt.
“That’s not a normal situation,” according to Case. In a normal situation, he noted that property values go up more strongly and REITs’ use of leverage adds to their returns.
“In this case, property values didn’t go up by quite enough,” Case said.
Meanwhile, the PureProperty Index Series showed that nation’s strongest region for property values during February was the South, with an increase of about 0.75 percent from the month before. The Midwest and West also performed well, whereas property values in the East posted a slight decline.
The PureProperty Index Series makes it possible to evaluate relative performance of property segments defined by region, property type, or both. As an example, Case highlighted that apartment properties in the Midwest had a stronger implied performance during February than apartments in the East.