2/15/2007: REITS Continue to Climb
The bidding war for Equity Office Properties (EOP) has helped push REITS even higher in 2007. Through 2/14, the Wilshire REIT index is already up 11% for the year, compared to 2.8% for the S&P 500. This is on top of a 36% return in 2006. Since the beginning of 2000, REITS are up a cumulative 375% or 24% annualized. REITS were a bargain in 2000, offering a dividend yield of 8.5%, and they were trading at about a 20% discount to the net value of the underlying assets. Today, however, REITS appear very expensive. They trade at a dividend yield of just 3.4%. This is only a 1.1 percentage point premium to the real yield on long-term Treasuries, which is a record low and less than a third of the historical average of 3.4 percentage points. Green Street Advisors shows that REITS were trading at about a 13% premium to net asset value at the end of January.