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
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–
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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
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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.