The Markets January 5, 2011

REITs Enjoy Strong 2010 Performance

U.S. REITs outperformed the broader equity market in 2010, matching their gains in 2009, according to the National Association of Real Estate Investment Trusts (NAREIT).
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A NAREIT news release said the FTSE NAREIT All Equity REITs Index delivered a total return of 27.95% in 2010 and the FTSE NAREIT All REITs Index gained 27.58% compared to 15.06% for the S&P 500. REITs’ 2010 returns came on top of 2009 gains of 27.99% for the FTSE NAREIT. 

The 10-year compound annual total return of the FTSE NAREIT All Equity REITs Index was 10.76% compared to 1.41% for the S&P 500. Additionally, equity REITs outperformed the S&P 500 over the past 1-, 3-, 5-,10-, 15-, 20-, 25-, 30- and 35-year periods, delivering double-digit gains in seven of those nine periods, NAREIT said.

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At year-end 2010, the equity market capitalization of the U.S REIT industry had increased to $389 billion, up 44% from $271 billion at the end of 2009, but still trailing that of the peak year of 2006, when equity market capitalization reached $438 billion at year-end.

All sectors of the U.S. REIT market delivered positive returns in 2010, and all but two sectors produced strong, double-digit returns. Top performing industry segments for the year were Apartments, up 47.04%; Lodging/Resorts, up 42.77%; and Commercial Mortgage Financing, up 41.99%. Retail REITs were up 33.41% for the year; Industrial REITs were up 18.89%; and Office REITs were up 18.41%.

The U.S. listed property market outperformed other segments of the global listed property market in 2010. The North America segment of the FTSE EPRA/NAREIT Global Real Estate Index Series delivered a 28.65% total return for 2010 compared to total returns of 17.21% for the Asia segment and 9.23% for the Europe segment.

Yield-seeking investors also benefited from REITs’ performance in 2010. The FTSE NAREIT All REITs Index’s yield at year-end was 4.23% compared with 3.3% for 10-year U.S. Treasuries.

According to NAREIT, REITs continued to raise public equity and debt at a rapid pace in 2010. “In a commercial real estate marketplace in which many private owners have continued to find it difficult to raise capital to restructure highly leveraged balance sheets, REITs again demonstrated their cost-effective access to capital through the public markets,” said NAREIT President and CEO Steven A. Wechsler, in a news release.

Compliance January 5, 2011

AIG Participant Sues PwC over Audits

A former employee of American International Group Inc. filed a lawsuit claiming PricewaterhouseCoopers L.L.P. was negligent in its audits of AIG and failed to pursue a claim against the accountants.
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Reuters reports that Wanda Mimms brought the suit on behalf of the AIG Incentive Savings Plan against PwC and AIG’s board. Mimms contends the AIG incentive plan held shares in the company from late February 2008 through late January 2009, and PwC, as AIG’s auditor, should have known the share price was inflated by inaccurate financial statements.  

According to Reuters, the complaint says Mimms demanded in July 2010 that AIG’s investment committee pursue action against PwC for losses in the plan; her demand was referred to AIG’s board, which rejected it in September.  

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The lawsuit asks that PwC be ordered to make the incentive plan whole for its losses, as well as other relief.  

A PwC spokesman told Reuters the company has not been served and cannot comment at this time. An AIG spokesman declined to comment.  

The case is Mimms v. PricewaterhouseCoopers L.L.P. et al, U.S. District Court, Southern District of New York, No 11-00030.

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