However, with all the talk about the latest-and-greatest industry trends, it can be easy to lose sight of REITs’ enduring role in the real estate investment world. In the past 18 months, however, the essential benefits of REIT investment have never been clearer.

The 2007 story for REITs is well-known to everyone who follows the industry. By the end of the year, the FTSE NAREIT All REIT Index had fallen 15.7 percent, as investors pulled back from so-called financial stocks. After a sustained run of successful years in the equity markets, REITs’ decline in share prices had left commercial real estate companies facing a new challenge.

With more than half of 2008 behind us, we can safely say that the industry passed these tests with flying colors, thanks to superior management and the underlying benefits of publicly traded real estate.

Despite struggles in the stock market in 2007, on the ground level, REITs continued to display the strong fundamentals and operating results that make them popular among the investing public in the first place. Even more importantly, REITs’ liquidity, transparency and moderate use of leverage have provided a sterling alternative investment at a time when the broader markets are suffering from firms with positions tied up in complex subprime mortgage securities and overextended borrowing.

The quality of REITs’ overall governance has been proven time and again, and that has shown no true signs of abating. For example, according to RiskMetrics Group’s Corporate Governance Quotient, the governance practices of the real estate industry have been well-above average for the last five years. This rating reflects the governance practices of 200 real estate companies around the country, virtually all of which are REITs. Real estate continued to best the overall corporate average in 2008, holding its place among the top performers across all industry groups.

Likewise, REITs’ continued reliance on moderate levels of leverage has helped established securitized real estate as a solid investment through all economic seasons. Between 2006 and 2007, for instance, the FTSE NAREIT All REIT Index dropped nearly 16 percent. During that same period, though, the ratio of debt to total market capitalization for the Index constituents climbed from 36.6 percent in December 2006 to 44.8 percent, an increase of only 8 percentage points. Additionally, the REIT industry’s overall coverage ratio, which illustrates the ability to pay off interest on debt, increased from 3.09 in December 2006 to 3.31 at the end of 2007.

Where does the REIT industry stand recently? Through the end of May, the FTSE NAREIT All REIT Index—up 6.46 percent for the year—had soundly outperformed the major market benchmarks:
• the Dow Jones Industrials down 4.72 percent;
• the S&P 500 down 3.80 percent;
• the Russell 2000 down 1.81 percent; and
• the NASDAQ Composite down 4.89 percent.

Despite the 2007 tumult in REITs’ share prices, the industry has returned to the form it has displayed so often before. Why? Because the enduring nature of the REIT approach to real estate investment, which includes the benefits of liquidity, strong governance and moderate use of leverage, should be just as appealing to investors during the bad economic times as it is during the good.

Martin E. Stein, Jr.
NAREIT Chair
Chairman and CEO
Regency Centers Corporation