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REAL ESTATE SECURITIES
Domestic
Real estate investment trusts (REITs), as measured by the NAREIT Equity
Index, significantly outperformed the broad equity markets in April, with a
gain of 31%, versus a gain of 9.6% for the S&P 500 Index. 1 All of the major
property sectors experienced double-digit gains for the month, as U.S. equity
markets rebounded from their lows in early March and expectations for
stabilization in the broad economy led to an improving outlook for real
estate.
Real estate stocks, which had been plagued by liquidity concerns earlier in the
year, raised some $6 billion in new capital since March in a wave of
recapitalizations and debt refinancing, which stabilized their balance sheets
and demonstrated their ability to access the capital markets. 2 While dilutive to
existing shareholders, these offerings were viewed positively by the market
because they gave companies the necessary capital to manage debt maturities
in the coming year.
REITs also moved to deleverage through buying back their bonds, in many
cases at discounts to face value, with 16 REITs repurchasing a total of $3.9
billion in debt at a discounted price of $2.5 billion over the past six months. 3
Beyond the successful debt and equity issuances by REITs, the most notable
news during April was the announcement by General Growth Properties, one
of the largest mall operators in the U.S., that it would file for bankruptcy
protection after the company failed to restructure its massive debt load with
creditors. This news had little impact on the REIT market, however, as the
company’s bankruptcy had been widely anticipated for several months.
The hotel/lodging sector (+67.5%) was the top performing property sector
within the NAREIT Equity Index during April, as U.S. business travel
stabilized and investors anticipated a potential economic recovery. 4 Retail
(+43.5%) also outperformed, primarily due to rising consumer confidence
and better-than-expected first quarter retail sales. 5 The industrial sector
(+35.3%) benefited from a successful $1 billion equity offering by Prologis,
the largest company in the industrial sector. Conversely, defensive sectors
such as healthcare (+18.3%) and self storage (+21.9%), which outperformed
during the downturn, lagged the index in the rally during April.
information@feg.com
Page 14
Christian Busken
Vice President
APRIL 2009
“Real estate stocks,
which had been plagued
by liquidity concerns
earlier in the year, raised
some $6 billion in new
capital since March in a
wave of recapitalizations
and debt refinancing. ”
© 2009 Fund Evaluation Group, LLC