Transcript Slide 1
What’s Next for REITs? American Association of Individual Investors Washington, DC Chapter Meeting Alexandria, Virginia March 21, 2009 All Information Included in this Presentation is Based on Publicly-Traded Securities Only National Association of Real Estate Investment Trusts® Summary • What is a REIT? • Why Invest in REITs? • REITs and the Current Economic Crisis • How to Invest in REITs What is a REIT? • REITs are publicly traded companies that own and manage investment-grade commercial real estate • Like Verizon in the telecommunications business or Merck in the pharmaceutical business, REITs are companies in the real estate business • REITs are not mutual funds, closed-end funds or partnerships • REITs provide a simple and inexpensive way to invest in commercial real estate without buying property directly Requirements of the REIT Election • Company must be in the real estate business – At least 75 percent of assets must be real property – At least 75 percent of revenue must come from real estate • Stock must be widely held • At least 90 percent of taxable income must be distributed annually to shareholders • Company receives a dividends paid deduction • Taxes are paid at the shareholder level What is a REIT? • Full-time professional management teams • Business plans designed to maximize shareholder value • SEC financial reporting and transparency • Stock values backed by real assets • Tax transparency • Traditional corporate governance and accountability The REIT Industry in 2009 • Approximately $600 billion of commercial real estate properties owned – – – – 10-15 percent of investment-grade commercial real estate More than 29,000 properties nationwide All major property sectors All major geographic regions • $160 billion equity market capitalization • 135 publicly traded REITs in the FTSE NAREIT All REIT Index • 120 companies trade on the NYSE Equity Market Capitalization of Listed U.S. REITs 500 Billions of dollars 400 300 Trend (14.5% Compound Annual Rate) 200 KIMCO Realty IPO November 1991 100 Note: Does not include operating partnership units. 0 1991 Taubman Centers IPO December 1992 (First UPREIT) 1993 1995 Data as of February 28, 2009. Source: NAREIT® 1997 1999 2001 2003 2005 2007 Types of REITs Today 89.3% EQUITY REITs Provide equity capital for commercial real estate by owning real estate assets. Derive revenues primarily from rents. Data as of February 28, 2009. Source: NAREIT® 10.0% MORTGAGE REITs Provide debt capital for housing and commercial real estate by investing in mortgages and mortgage-backed securities. Derive revenues primarily from interest payments. 0.7% HYBRID REITs Combine the investment strategies of both equity and mortgage REITs U.S. REITs Invest in All Property Types Property Sector Percent Residential (Apartments) 15 Office Buildings 13 Shopping Centers 11 Regional Malls 9 Diversified 6 Industrial Facilities 4 Mixed (Industrial/Office) 3 Free Standing (Retail) 3 Subtotal 64 Health Care 15 Self Storage 9 Specialty 9 Lodging/Resorts 3 Total Data as of February 28, 2009. Source: NAREIT® 100 Summary • What is a REIT? • Why Invest in REITs? • REITs and the Current Economic Crisis • How to Invest in REITs Why Invest in REITs? 1. Long-term performance 2. Reliable and significant current income which grows over time 3. Capital preservation and protection from inflation 4. Diversification Performance REITs Outperform Leading U.S. Benchmarks Compound annual total returns in percent: January 1979 – January 2009 Russell 2000 6.7 NASDAQ Composite1 0.00 1Price only returns 8.4 FTSE NAREIT Equity REIT Index 10.2 S&P 500 10.2 5.00 10.00 15.00 Dividends U.S. REITs Deliver Reliable Current Income Average annual total return: 11.1 percent Average annual income return: 7.3 percentage points or 66 percent of total return 50 Percent 40 Average annual income return 7.3 30 20 10 0 -10 -20 -30 Income Price -40 -50 1989 1992 1995 Data for 20-year period ranging 1989-2008. Source: NAREIT® 1998 2001 2004 2007 Summary • What is a REIT? • Why Invest in REITs? • REITs and the Current Economic Crisis • How to Invest in REITs REITs and the Current Economic Crisis • REIT share prices have been battered during the current economic crisis – Down 38% in 2008 (worst year in history; all losses in 4th Quarter) – Volatility soared – M&A and IPOs dried up • Only three prior years with total share price declines in the modern REIT era • S&P declined 38.5%; DOW down 33.8%; NASDAQ plunged 40.5% last year Comparison of FTSE NAREIT Equity REIT Index Downturns 110 Strong real estate fundamentals; tech stock boom (’97-01) Real estate depression (’89-91) 100 90 80 -23.9% -23.7% 70 -37.0% General domestic economic depression (’72-76) 60 50 40 Credit crisis beginning in residential mortgages (’07-?) 30 -70.7% 20 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 Months after start of downturn 9/72-12/74-2/76 Data as of February 28, 2009. Source: NAREIT® 8/89-10/90-4/91 12/97-11/99-1/01 1/07-? 48 REITs and the Current Economic Crisis • Stock picking beat sector allocation – every sector had outperformers – 7 REITs had positive total returns – 76 REITs lost more than 20 percent – Large cap REITs underperformed – Companies that increased dividends did better REITs and the Current Economic Crisis • REITs trading at levels not seen since the 19981999 REIT bear market • REITs are trading at an average discount of 45 percent • Average Price/FFO multiple is 8X • Average market-cap weighted dividend yield is 10% REITs and the Current Economic Crisis: Share Price Premium to NAV 50% 30% 12.4% 10% Average since 1993: 2.4% -10% -30% - 45.3% -50% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Data as of February 28, 2009. Source: Green Street Advisors, Inc., based on NAV estimates for U.S. REITs under coverage REITs and the Current Economic Crisis • REITs are facing the following issues – Rapidly accelerating recession – Lack of available capital – Investor headwinds – Hedge fund and leveraged ETF activity REITs and the Economic Crisis: Sector Outlook • Apartments – mortgage difficulties helping in short term; supply increasing due to condo conversions • Retail (Andy will provide overview) • Office (Rand will discuss) • Hotels – slowdown in travel, short-term “leases” hurt • Industrial – rising inventories and global recession • Storage – rising “vacancies” as people give up units • Health Care – considered most resilient; favorable demographics Summary • What is a REIT? • Why Invest in REITs? • REITs and the Current Economic Crisis • How to Invest in REITs How to Invest in REITs • REIT stocks can be bought and sold in a number of ways: • Most stocks trade on major stock exchanges • Dividend reinvestment programs (DRIPs) • REIT and real estate security open-end mutual funds • Closed-end funds (CEFs) • Exchange traded funds (ETFs) Information on REIT Investing • REIT.com – – – – – Source for information on REIT investing Direct links to NAREIT member web sites Performance information and stock tickers List of REIT mutual funds List of REITs with DRIPs • Wall Street analyst coverage • Independent research coverage • Corporate investor relations Disclaimer NAREIT® does not intend this presentation to be a solicitation related to any particular company, nor does it intend to provide investment, legal or tax advice. Investors should consult with their own investment, legal or tax advisers regarding the appropriateness of investing in any of the securities or investment strategies discussed in this presentation. Nothing herein should be construed to be an endorsement by NAREIT of any specific company or products or as an offer to sell or a solicitation to buy any security or other financial instrument or to participate in any trading strategy. NAREIT expressly disclaims any liability for the accuracy, timeliness or completeness of data in this presentation. Unless otherwise indicated, all data are derived from, and apply only to, publicly traded securities. Any investment returns or performance data (past, hypothetical, or otherwise) are not necessarily indicative of future returns or performance.