UNITED STATES - Real Estate Investment Trusts lost on average 37.3% in 2008, according to the latest report by the National Association of Real Estate Investment Trusts (REITs) in the United States.
The FTSE NAREIT Equity REIT Index was down 37.73% for the year, despite a16.39% rebound in December 2008, as the affects of the global economic crisis and concerns about liquidity kicked in.
Brad Case, vice president of research and industry information at NAREIT, said banks' "concerns about liquidity" would be the main obstacle for REITs going forward.
"[Banks] don't want to let money out of the house. They want to take existing loans and receive the repayment of those loans. What they don't want is to rollover those loans," he suggested.
Commercial mortgage REITs were hardest hit in 2008, recording average loses of 74.8%, followed by the industrial REITs, whose returns fell by 67.47% as a result of the slowdown in global manufacturing and decreased wholesale activity.
Year-on-year returns for regional shopping mall REITs and lodging/resort REITs also fell by 60.60% and 59.67% respectively, influenced by investors' fear of a halt in consumer spending.
The best performing REITs were the self-storage REITs, which delivered positive returns of 5.1%, followed by healthcare REITs, which returned -12%.
"For the next few years I think there is a lot of reason to be optimistic," said Case.
"REITs right now are trading at a tremendous discount relevant to the value of the properties they hold and that's even considering that the value of the properties has gone down substantially," he told IPE Real Estate.
According to Case however, many pension funds do not currently have the money to tap opportunities in the REIT market.
"Interestingly, it's a unique situation for individual investors because big institutional investors such as pension funds are in many cases not in a position to take advantage of those tremendous REIT stock prices, because they are stuck in their direct real estate investments, either owning properties or investing through private equity real estate funds because those are illiquid," he said.
As a result, pension funds are trying to unload some of their property investments to make more liquid and transparent property investments like REITS, suggested Case.
The FTSE NAREIT Equity REIT Index declined in 2007 by 15.7% after a 35.1% gain in 2006.
Although some REITs cut dividends in the second half of last year, the All-REIT and Equity REIT indices posted the highest year-end dividend yield in almost a decade. As of December 31 2008, the FTSE NAREIT All REIT Index's yield was 3.37% and the FTSE NAREIT Equity REIT Index's was 7.56%.
Meanwhile, the Dow Jones Wilshire US REIT Index closed down 39.2% in 2008, with the Hotel Index and Retail Index losing the most, down 59.6% and 50.7% respectively.
It was also announced today the FTSE EPRA/NAREIT Global Real Estate Index Series has extended its coverage to include 12 Emerging Markets indices to enable investors to track the relative performance of listed property in emerging markets around the world.