The Markets May 5, 2011

All REIT Sectors Deliver Strong Returns in April

On a total return basis, the FTSE NAREIT All Equity REITs Index gained 5.11% and the FTSE NAREIT All REITs Index was up 4.89% in April, compared to 2.96% for the S&P 500.
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According to the National Association of Real Estate Investment Trusts (NAREIT), for the first four months of the year, the FTSE NAREIT All Equity REITs Index was up 13.00% and the FTSE NAREIT All REITs Index was up 12.02% compared to the S&P 500’s 9.06% gain. On a 12-month basis ended April 30, REITs strongly outperformed the S&P 500, with the FTSE NAREIT All Equity REITs Index up 22.88% and the FTSE NAREIT All REITs Index up 22.37% compared to the S&P 500’s 17.22%.  

The Office sector topped other major REIT market sectors in April with a 6.87% return. Apartments and Retail followed closely with 6.59% and 6.55% returns, respectively. The Retail sector was led by Regional Malls with a 7.15% return. The Industrial sector delivered a 2.33% return for the month.  

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Offices also topped other major sectors for the first four months of 2011 with a 15.01% return, followed by Apartments with a 13.91% gain; Industrial with 13.77% and Retail with 11.36%. Regional malls again topped the Retail sector with a gain of 13.90%. For the 12 months ended April 30, Apartments were up 31.52%; Industrial was up 28.5%; Retail was up 25.22% (led by Regional Malls, up 29.43%); and Office was up 19.37%.  

REITs also continued to deliver strong yields for income investors. The top performing sector was Home Financing Mortgage REITs with a yield of 14.18% at April 30. The FTSE NAREIT All REITs Index delivered a 4.09% yield at April 30, compared with a 2.89% yield for the Barclays U.S. Agg. Corporate Bond Index and a 1.90% yield for the S&P 500.  

Industry data as of April 30, 2011 includes: 

  • Total equity market capitalization = $455 billion 
  • Equity REIT market capitalization = $412 billion 
  • REITs own approximately $500 billion of commercial real estate assets, or 10% to 15% of total institutionally owned commercial real estate 
  • 158 REITs are in the FTSE NAREIT All REIT Index 
  • 140 REITs are traded on the New York Stock Exchange 
  • NYSE listed REITs equity market capitalization = $445 billion 
More information is at http://www.nareit.com.
Compliance May 5, 2011

Plan Participants Denied Share of Motorola Settlement

Motorola 401(k) Profit-Sharing Plan participants are excluded from the class specified in a securities lawsuit brought against the company, so they cannot share in the settlement of that litigation.
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In making its decision, the 7th U.S. Circuit Court of Appeals noted that under federal securities law, an “affiliate” is defined by reference to control; one who controls, is controlled by, or is under common control with an issuer of a security is an affiliate. Motorola appointed the plan’s administrator – the Motorola 401(k) Profit-Sharing Committee – to serve at the control of Motorola’s Board of Directors, making it an affiliate and therefore excluded by the class definition.  

However, the appellate court disagreed with a district court’s denial of the plan’s claim to a share of the settlement because the plan’s participants purchased units of the Motorola Stock Fund, not Motorola common stock. The 7th Circuit noted that the claim was filed by the plan, and it is undisputed that the plan regularly purchased publicly traded Motorola common stock on the open market.  

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According to the opinion, in 2003, purchasers of Motorola, Inc. common stock brought a class-action lawsuit against Motorola and its then-principal officers alleging violations of federal securities laws. Class members were defined as investors who purchased publicly traded Motorola common stock during the class period. Excepted from the class was any purchaser who was also an affiliate of Motorola.  

The events underlying the securities-fraud case spawned parallel class-action litigation filed by current and former Motorola employees under the Employee Retirement Income Security Act (ERISA). The securities-fraud action later settled for $190,000,000, but before the proceeds were distributed, the plan submitted a claim to share in the settlement.   

The case is In re Motorola Securities Litigation, 7th Cir., No. 09-1750.

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