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Beginning Real Estate Investing

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					      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
             Billions of dollars
       500




       400




       300



                                                Trend (14.5% Compound Annual Rate)
       200


                KIMCO Realty IPO
                 November 1991
       100
                                                                                     Note: Does not include operating partnership units.
                                                             Taubman Centers IPO
                                                                December 1992
                                                                (First UPREIT)
         0
         1991            1993        1995       1997         1999         2001           2003              2005              2007


Data as of February 28, 2009. Source: NAREIT®
     Types of REITs Today


     89.3%    EQUITY REITs
              Provide equity capital for
              commercial real estate by         10.0%   MORTGAGE REITs
              owning real estate assets.                Provide debt capital for
              Derive revenues primarily                 housing and commercial real
              from rents.                               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




Data as of February 28, 2009. Source: NAREIT®
     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                        100

Data as of February 28, 2009. Source: NAREIT®
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             8.4




                        FTSE NAREIT Equity REIT Index         10.2




                                   S&P 500                      10.2



           0.00                      5.00               10.00          15.00
1Price   only returns
     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
               Percent
         50

         40                                                  Average annual
                                                              income return
         30                                                        7.3

         20

         10

           0

        -10

        -20

        -30
                                      Income       Price
        -40

        -50
               1989            1992              1995            1998         2001   2004   2007


Data for 20-year period ranging 1989-2008. Source: NAREIT®
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
                                        Real estate depression (’89-91)
                                                                                      stock boom (’97-01)
       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   48

                                                             Months after start of downturn

                             9/72-12/74-2/76                      8/89-10/90-4/91                      12/97-11/99-1/01                  1/07-?


Data as of February 28, 2009. Source: NAREIT®
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 1998-
  1999 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.

				
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