Apartment REITs Score High Returns in 2010

By Dees Stribling, Contributing Editor

Washington, DC—The National Association of Real Estate Investment Trusts reports that all sectors of the U.S. REIT market delivered positive returns in 2010, with apartment REITs leading the way. All together apartment REITs posted average returns of 47.04 percent for 2010, besting the lodging and resorts sector (up 42.77 percent) and commercial mortgage REITs, up 41.99 percent. Retail REITs were up 33.41 percent for the year; Industrial REITs were up 18.89 percent; and Office REITs were up 18.41 percent.

The strong run for apartment REITs comes in the context of better times for all U.S. REITs. According to NAREIT, the FTSE NAREIT All Equity REITs Index showed an increase of 27.95 percent in 2010, and similarly the FTSE NAREIT All REITs Index gained 27.58 percent during the year. The returns came on top of 2009 gains of 27.99 percent for the FTSE NAREIT All Equity REITs Index and 27.45 percent for the FTSE NAREIT All REITs Index.

“The apartment REIT sector has benefitted from the fact that consumers are still standing back from the single-family housing market and choosing to rent rather than to buy,” Ron Kuykendall, a spokesman for NAREIT, tells MHN. “At the same time, the apartment sector has been one in which there has been very little development in recent years. Consequently, the market is supply-constrained, with very little new construction coming on line.”

That means that apartment REITs found themselves in the sweet spot in 2010 of seeing vacancies fall and rents rise. “This positive situation has been reflected in REIT share prices in the past year,” Kuykendall continues. Not only that, “REITs’ access to capital has allowed them to begin to acquire properties from distressed private sellers. Investors have recognized this strong position that REITs are in, and that also has fueled REIT share price growth.”

Apartment REITs, and REITs generally, also have benefitted very significantly from their access to capital through the public markets in 2010, according to NAREIT. U.S. REITs raised $47.5 billion in new equity and debt through the public markets last year. That outpaced the $34.7 billion in public equity and debt they raised in 2009 and nearly matched the $49 billion they raised in the peak year of 2006.

REITs have used the capital raised to pay down debt and begin to make acquisitions. The industry’s debt ratio as of 3Q10 was 41.4 percent, down from 66.3 percent in 1Q09, the approximate trough of the last cycle. REIT share prices generally have risen since March 2009, fueled largely by the recapitalization of the industry, posits NAREIT.