Real Estate Investment Trusts (REITs) have come back with a vengeance from the financial crisis and recession, and have outperformed the general market over the last 12 months. The industry has also reestablished its access to the capital markets for both equity and debt.
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A recent report from the National Association of REITs (NAREIT) reported that U.S.-based REITs raised $22 billion in capital during the first six months of 2010. The report said that $10.9 billion of debt was raised, with the balance in equity split between initial and secondary offerings.
NAREIT also reported that the FTSE/NAREIT index had a 10.23% compound annual total return for the 12 month period ending June 30. The index is composed of 148 U.S.-based REITs. The Standard & Poor's 500 Index had a compound annual total return of -1.59% over the same time frame.
Several REITs have gone public in 2010, in a variety of sub sectors including retail, office, lodging and industrial. The deals have raised more than $1 billion in capital.
The latest was IPO was Hudson Pacific Properties Inc. (NYSE:HPP), which raised $218 million at the end of June 2010. This REIT specializes in the office sub sector and owns eight buildings in California.
Piedmont Office Realty Trust (NYSE:PDM) also focuses on the office sub-sector across the United States. The company has 73 office properties located in major cities including Atlanta, Philadelphia, Los Angeles, New York and Washington D.C. Piedmont Office Realty Trust is one of the best performing REIT IPOs in 2010, and is up 23% since going public in February 2010.
Excel Trust (NYSE:EXL) went public in April 2010, and is down 6% since the stock started trading in the aftermarket. Excel focuses on retail properties including grocery store anchored shopping centers and freestanding stores.
Chatham Lodging Trust focuses on extended stay properties in the lodging area. This one has not performed well since its May 2010 IPO, and is down 18% from its IPO price of $20 per share.
Terreno Realty (Nasdaq:TRNO) is an industrial REIT and went public in February 2010. Terreno Realty owns industrial properties in six markets across the United States. The company has struggled since going public with the stock down 10% since its IPO.
It seems that everyone wants to be a REIT. Weyerhaeuser Company (NYSE:WY) recently declared a special dividend totaling $5.6 billion as part of a plan to convert the company to REIT status. Weyerhaeuser Company plans to change its status to a REIT when the company files its tax return next year. The election will be retroactive to January 1, 2010.
The Bottom Line
REITs suffered during the financial crisis as investors dumped anything associated with real estate and leverage. The industry has now come back and has resumed its access to capital and outperformed the stock market over the last 12 months. (Find out why funds from operations is a superior measure of REIT performance. For more information read How To Assess A Real Estate Investment Trust.)
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