Institutional investors with $11.9 trillion in assets have been net sellers of REITs since November, says State Street. Deutsche Bank Private Wealth Management and MFS Investment Management joined the list of sellers just as Blackstone Group finalized its bid for Equity Office. US REIT yields are at their lowest relative to Treasury Bonds since 1985. The National Association of REITs estimates that the average yield on US REITs fell to 3.78% at end-January, 1.03 percentage points below the 10 year Treasury's 4.78% yield Friday. US REITs trade at 18.8x adjusted funds from operations according to The Leuthold Group, their highest level since 1997 and almost 50% higher than their average over the last ten years. US REITs have led the S&P this year, returning 12%, while the Bloomberg Asia REIT index rose 34% in the last 12 months and the British FTSE All-Share Real Estate Index rose 45% in 2006. Asian REITs currently yield 3.26% and Western European REITs 3.4%, according to Bloomberg. REIT prices have been driven by rising rents and land values, and M&A. Land prices in Tokyo rose in 2006 for the first time in 15 years. Office rents in mid-town Manhattan rose 19% in the 12 months to November '06 according to CB Ellis, allowing Blackstone to sell 8 Equity Office buildings in Manhattan yesterday to private developer Harry Macklowe for $7 billion, and the Port Authority of New York to open discussions with private investors to sell the $3 billion Freedom Tower in the World Trade Center.
Sources: Bloomberg, NY Times, Wall Street Journal
Commentary: Real Estate Stocks Are Done - Really?!? • Blackstone's Purchase of Equity Office May Mark the Top for REITs - Barron's • Equity REITs Won Big in 2006: Will They Revert to Mean? • Asset Class Yield Historical Comparisons
Stocks/ETFs to watch: Equity Office Properties Trust (EOP). ETFs: iShares Dow Jones US Real Estate (NYSEARCA:IYR), iShares Cohen & Steers Realty Majors (NYSEARCA:ICF), Vanguard REIT Index VIPERs (NYSEARCA:VNQ), SPDR DJ Wilshire International Real Estate ETF (NYSEARCA:RWX).