A year ago in this column my predecessor as NAREIT chair, Steve Roth, talked about the virtues of REIT investing and the expanded role of real estate stocks in investment portfolios. Under Steve's watch, the industry continued to gain ground and strengthen the solid foundation already established. As we start 2004, I am confident the publicly traded real estate industry is poised to continue its progress in becoming a vital component of every diversified investment portfolio.

In its relatively short history, our industry has seen its total equity market capitalization top $200 billion. There are more than 170 publicly traded REITs that own more than $400 billion of commercial real estate. Five years ago everyone assumed we'd be down to 100 companies and the smaller players would have vanished, but we continue to have a broad industry occupied by diverse companies of all shapes and sizes.

The size of an industry, however, means little to investors if the performance isn't there. And for the fourth consecutive year, the performance has been outstanding. Through November, the NAREIT Equity Index posted a total year-to-date return of 33.9 percent, outperforming both the S&P 500 and Dow Jones Industrial Average.

While year-to-year and quarter-to-quarter performance is important, I am less concerned with those numbers given the long-term focus of our businesses.

There was a view a few years ago that real estate companies were growth stocks, largely based on expectations from investors and analysts. Nobody was willing to admit that, across the cycle, we're really a low-teens total return industry. When the Nasdaq was going up at 80 percent a year, many CEOs didn't want to admit they were in the high single-digit, low-teen business. But as we all know, low-teens total returns are actually quite attractive—that's more than the stock market has averaged annually over the last 100 years.

While industry returns have continued to shine over the short and long terms, REIT dividends continue to be the standard-bearer for investors seeking income-producing equities. The NAREIT Composite Index dividend yield currently amounts to about 6 percent, compared to the S&P 500 dividend yield of near 2 percent. Our industry recognizes the importance of dividends and, even in the face of some difficult real estate market fundamentals, 50 REITs have increased their quarterly dividend payment in 2003.

All of these factors have not been lost on investors. The publicly traded real estate industry has seen a substantial increase in the amount of money coming in to the sector from both institutional and retail investors, to the tune of more than $4 billion in 2003. Our message of dividends and diversification is being heard, but we need to continue to expand the audience that is listening, especially to the roughly 90 percent of all 401(k) plan sponsors that do not yet offer a real estate option.

As we look ahead to 2004 and beyond, the performance of the publicly traded real estate industry continues to be impressive and I am optimistic this will continue. By continuing to get the industry's message out, we will see the investor base continue to broaden as more and more 401(k) plans begin opening their doors to REITs. The foundation has been laid, now it is up to all of us to ensure the growth of the industry continues.

Hamid R. Moghadam
NAREIT Chair
Chairman and CEO,
AMB Property Corporation