REIT returns fell 37.3% in 2008

Real estate investment trusts wrapped up 2008 with negative returns, including dividends, of 37.3% on average, according to a report released Wednesday by the National Association of Real Estate Investment Trusts in Washington. The performance was in line with the broader indexes, such as the Standard & Poor’s 500 stock index, which was down 37%, the Russell 2000 Index, which was off 33.8%, and the Nasdaq Composite Index, which declined 40.5%. The REIT decline would have been far worse if the sector hadn’t enjoyed a 16% rally in December. Within the REIT sector, self-storage REITs performed the best, with positive total returns of 5.1%. This was followed by health care REITs, which were off 12%. Hardest-hit were commercial-mortgage REITs, which posted negative returns of 74.8%, industrial REITs, whose returns fell 67.5%, and regional malls, which posted negative returns of 60.6%. This was followed by lodging REITs, which were off 59.7%, office REITs, which were down 41.1%, and shopping-center REITs, which were off 38.8%. The slowdown in global manufacturing and decreased wholesale activity depressed the industrial REIT sector, while concerns about deteriorating consumer spending and rising retail-store closings took a toll on retail REITs. Lodging was hit by the pullback in both leisure and business travel. Equity REITs, excluding the mortgage REIT sector, posted negative returns of 37.7%. Equity REITs had been on a tear for much of 2008, outperforming the broader market through September, when they were up almost 2%, compared with the S&P 500, which was down more than 19%. However, concerns about falling property values, rising unemployment and challenges facing REITs in refinancing debt in the seized-up credit markets caused a sell-off in October and November. Indeed, investors were spooked when a couple of blue-chip names in the REIT world — General Growth Properties Inc. in Chicago and ProLogis in Denver — began making headlines as they frantically struggled with debt troubles that threatened their very survival. By the end of November, equity REIT returns were off 46.5%. However, investors, sensing that the group had been oversold, began snapping up REIT shares in December, which allowed the group to finish the year with returns in line with the broader indexes.