REITs' Prospects for 2007 Debated

Erika Morphy is co-editor of Debt and Equity Journal, from which this article is excerpted.

Washington, DC—With little fanfare, the National Association of Real Estate Investment Trusts reported last week the primary US REIT index delivered an eye-popping 34.35% return in 2006–outperforming other major US equity market benchmarks for the seventh year in a row. The best performing category was office, Nareit found, which delivered an average 45.22% return. Office was followed by healthcare, at 44.55%; self-storage at 40.95%; and multifamily at 39.95%. Not surprisingly, the REIT industry market cap has reached a new high at $439 billion, up 40% from a year ago.

Now that last year’s figures have been tallied, the industry has already begun speculating whether it can beat or at least meet the same levels in 2007. There are concerns, if not among actual REITs then among third party investment advisors, that the performance of REITs may have peaked. Overly high valuations and dividends lower than 5% were oft-cited reasons in a series of interviews by Debt & Equity Journal.