Viewpoint March 2013

REITs: Building on Success

Despite continued uncertainty in the global economy, market conditions were largely favorable for real estate securities last year. New supply was very limited, demand improved and the cost of capital reached new lows. With these factors still intact, we continue to see potential for attractive total returns as 2013 progresses.

Executive Summary (for the full report, click here)

Real estate investment trusts (REITs) and other real estate securities have a track record of delivering compelling returns over the long term. Since the emergence of the modern REIT era in the early 1990s, real estate securities have meaningfully outperformed stocks and bonds in both the U.S. and global markets.(1)

Why have real estate securities done so well? We would point to several things, including stable cash fl ow tied to leases, limited new supply of commercial space and the fact that these companies own tangible assets—land and buildings—that tend to rise in value over time.

In the near term, we continue to see attractive potential for listed real estate across the global landscape. In Europe and Asia Pacific, real estate securities are trading below their net asset values(2) (NAVs) on average, including many companies with high-quality assets and attractive growth prospects. For U.S. REITs, we believe the lack of new commercial real estate supply, combined with low interest rates and improving demand trends, will continue to drive positive cash flow growth and property values for the foreseeable future.

For additional perspective on the long-term factors driving total returns for real estate securities, see our whitepaper, The Case for Real Estate Securities.

The content above is a summary of the full report. To continue reading, click here.

(1) From 1/1/1994 through 12/31/2012, the FTSE NAREIT Equity REIT Index, FTSE EPRA/NAREIT Developed Real Estate Index, S&P 500 Index, MSCI World Index, Barclays U.S. Aggregate Bond Index and Barclays Global Aggregate Bond Index had average annualized total returns of 10.7%, 8.1%, 8.1%, 6.6%, 6.2% and 6.2%, respectively.
(2) Net asset value is the marked-to-market book value of a company’s property investments, measuring the estimated market value of the assets less any liabilities.

Important Disclosures
The views and opinions in the preceding commentary are as of the date of publication and are subject to change. There is no guarantee that a market forecast made in this commentary will be realized. This material represents an assessment of the market environment at a specific point in time, should not be relied upon as investment or tax advice and is not intended to predict or depict performance of any investment. Investors should consult their own advisors with respect to their individual circumstances.

Risks of Investing in Real Estate Securities
Property values may fall due to increasing vacancies, declining rents resulting from economic, legal, tax, political or technological developments, lack of liquidity, limited diversification and sensitivity to certain economic factors such as interest rate changes and market recessions. The risks of investing in REITs are similar to those associated with direct investments in real estate securities. Foreign securities involve special risks, including currency fluctuations, lower liquidity, political and economic uncertainties, and differences in accounting standards. Some international securities may represent small- and medium-sized companies, which may be more susceptible to price volatility and less liquidity than larger companies.

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