An article in the Wall Street Journal (http://online.wsj.com/news/articles/SB10001424052702303819704579320581924300124) focused on whether REIT stock prices typically decline when interest rates increase. They usually don't, because the pace of economic growth is generally more important--and interest rates generally increase as a result of improving economic conditions. When demand conditions (employment, income, consumer spending, etc.) are strengthening, commercial real estate usually becomes more valuable because prospects improve for future growth in rents and occupancy levels. I have done many other versions of this analysis, updated by several years. Questions? Contact me at bcase@nareit.com.

1. “Urban Legend or Not?”
U.S. Listed Equity REIT Interest Rate Sensitivity
January 2014
National Association of Real
Estate Investment Trusts®

2. Key Takeaways
Equity REITs are not bonds – so why have they been punished on fears about interest rates?
• Publicly traded equity REITs outperformed stocks and bonds for most periods in the past 20 years and are only moderately
correlated with both. But since May 2013, REITs have underperformed the stock market. The same fears about Federal Reserve
tapering and interest rate increases that sparked the bear market in bonds have hit sentiment on REITs.
Equity REIT sensitivity to interest rates is a more complicated story.
• Financial media and market participants frequently assert REIT sensitivity to interest rates, but analysis of rate increases since
1995 fails to show a relationship – in fact, REIT returns performed well in 12 out of 16 cases.
Equity REIT income is not “fixed income” – GDP growth underpins commercial real estate demand and fundamentals.
• Data show that economic growth, demand for commercial real estate and fundamentals like occupancy rates, FFO and rental
income are strongly linked to REIT performance.
We are in the “third inning” of a long real estate cycle – with supply of new properties near record lows.
• Commercial real estate cycles are long – 18 years on average from peak to peak, a period that was observed at least as far back
as 1930. The current cycle began in 2009, and new construction is way below average, constraining supply of new properties.
Five factors in addition to interest rates will drive the future performance of equity REITs.
• Economy / commercial real estate demand
• Limited supply of new commercial space
• Rental income and dividend growth
• Higher property asset values
• Long run for real estate cycle
Equity REITs offer benefits of both stocks and bonds – and the power of diversification – to
deliver better returns with lower risk.

3. Strong Decade for Equity REITs, Strong
Recovery Since Financial Crisis…
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12
Growth of $10,000 initially invested on 12/31/2002
FTSE NAREIT All U.S. Equity REITs TR S&P 500 TR

4. Equity REITs Underperform in 2013 YTD –
Interest Rate Fears Get the Blame
0.95
1
1.05
1.1
1.15
1.2
1.25
1.3
12/31/12 1/31/13 2/28/13 3/31/13 4/30/13 5/31/13 6/30/13 7/31/13 8/31/13 9/30/13
FTSE NAREIT All U.S. Equity REITs TR S&P 500 TR BC US Aggregate Bond Index TR
Through 5/21/13:
Economic recovery drives returns
up 17.6% for listed equity REITs
5/22/13:
FOMC minutes suggest Fed
asset purchases could begin
tapering as early as June
5/22/13 - 6/26/13:
Tapering concerns drive returns
down 13.5% for listed equity REITs
but just 3.3% for large-cap stocks
6/27/13:
Clarifications by Fed officials
ease concerns about tapering

5. Equity REITs and Interest Rates
Market Commentary on Interest Rate Sensitivity
5
Rising Rates Hit REITs Hard, CNBC,
By Diana Olick, 6/6/13
“REITs are questioning how they will
have to change their strategies should
rates suddenly soar. ‘REITs are highly
sensitive to the interest rate
environment, they're effectively bond
substitutes on the equity side. They are
enormous users of capital,’ says David
Toti, a REIT analyst at Cantor
Fitzgerald. ‘A change in rates impacts
their cost of capital, and it impacts their
ability to acquire aggressively.
REIT Share Slump Deepens in U.S.
on Rising Interest-Rate Concern,
Bloomberg Businessweek, By
Brian Louis, 6/20/13
“This sector is going to woefully
underperform in a rising rate
environment,” Jonathan Pong, an
analyst at Robert W. Baird & Co. in
New York, said in a telephone
interview. “History proves that out.”
Investors Turn From Once-Hot
REITs, The Wall Street Journal, By
Robbie Whelan, 10/8/13
“REITs, which pay little or no
corporate income tax and usually pay
steep dividends, are sensitive to
rising interest rates because they
depend on borrowed money to
expand their businesses. As a
result, when borrowing costs rise,
REITs get dinged twice: their cost
of capital goes up, and their dividend
payments become less appealing
compared with other high-yielding
investments.”

6. Equity REITs and Interest Rates
Market Commentary on Interest Rate Sensitivity
6
REIT Share Slump Deepens in U.S.
on Interest-Rate Concern,
Bloomberg News, By Brian Louis,
6/20/13
“U.S. real estate investment trusts
plunged, capping the worst two-day
decline since October 2011, as
investors sold shares of the
companies vulnerable to rising
interest rates.”
Five REITs to Buck Rising Rates,
Barron’s – Investor’s Soapbox
(Online), 9/18/13
“Rising interest rates in the
medium to longer term, we
believe, will likely represent a
headwind to real-estate
investment trust/property
performance.”
Rising Interest Rates Pull REIT
ETFs Toward Bear Market, ETF
Trends, 8/25/13
“‘The biggest risk to the sector is the
prospect of rising interest rates,’
according to Morningstar analyst
Abby Woodham. ‘When rates rise,
REITs will have to allocate more
cash to debt servicing and less to
business reinvestment and dividend
payouts to investors. Higher rates
will also make REIT yield less
attractive, putting downward
pressure on the sector’s valuation.

7. 7
Source: NAREIT® analysis of data from Federal Reserve Board, MSCI U.S. REITs Index, and FTSE NAREIT All U.S. Equity REITs Index.
Listed Equity REIT Total Returns During Episodes of Rising
Interest Rates Show Gains for Most Periods Since 1995
• January 18, 1996 – July 5, 1996
• 10-year yield 5.53% → 7.06%
• REITs ↑ 6.18% (+13.8% annualized)
• November 29, 1996 – January 27, 1997
• 10-year yield 6.06% → 6.69%
• REITs ↑ 10.66% (+92.4% annualized)
• October 5, 1998 – January 20, 2000
• 10-year yield 4.16% → 6.79%
• REITs ↑ 2.02% (+1.6% annualized)
• March 22, 2001 – May 29, 2001
• 10-year yield 4.73% → 5.54%
• REITs ↑ 7.33% (+47.4% annualized)
• November 7, 2001 – April 1, 2002
• 10-year yield 4.22% → 5.44%
• REITs ↑ 15.71% (+46.1% annualized)
• June 13, 2003 – September 2, 2003
• 10-year yield 3.13% → 4.61%
• REITs ↑ 8.13% (+43.1% annualized)
• October 25, 2004 – March 28, 2005
• 10-year yield 3.99% → 4.64%
• REITs ↑ 1.94% (+4.7% annualized)
• February 14, 1997 – April 11, 1997
• 10-year yield 6.28% → 6.98%
• REITs ↓ 2.01% (-12.6% annualized)
• March 16, 2004 – June 14, 2004
• 10-year yield 3.70% → 4.89%
• REITs ↓ 7.02% (-26.0% annualized)
• June 2, 2005 – June 26, 2006
• 10-year yield 3.89% → 5.25%
• REITs ↑ 20.70% (+19.2% annualized)
• March 17, 2008 – June 13, 2008
• 10-year yield 3.34% → 4.27%
• REITs ↑ 9.18% (+42.9% annualized)
• October 1, 2009 – April 5, 2010
• 10-year yield 3.21% → 4.01%
• REITs ↑ 29.43% (+67.5% annualized)
• October 6, 2010 – February 8, 2011
• 10-year yield 2.41% → 3.75%
• REITs ↑ 9.47% (+30.4% annualized)
• July 25, 2012 – September 5, 2013
• 10-year yield 1.43% → 2.98%
• REITs ↑ 2.70% (+2.5% annualized)
 July 25, 2012 – May 21, 2013
• 10-year yield 1.43% → 1.94%
• REITs ↑ 24.40% (+31.3% annualized)
 May 21, 2013 – September 5, 2013
• 10-year yield 1.94% → 2.98%
• REITs ↓ 17.45% (-47.9% annualized)
• December 1, 2006 – June 12, 2007
• 10-year yield 4.43% → 5.26%
• REITs ↓ 5.38% (-10.2% annualized)
• December 18, 2008 – June 10, 2009
• 10-year yield 2.08% → 3.98%
• REITs ↓ 0.74% (-1.6% annualized)

8. Muted Impact of Higher Interest Rates on Equity
REITs
Case Study: Economic growth and rising REIT cash flows and dividends drove a 99% REIT total return
performance from Q4 2003 to Q4 2006, a period when the Fed raised interest rates dramatically
•Fed Funds Rate rose five-fold, from 1.0%
to 5.25% from Q4 2003 to Q4 2006
•Nominal GDP increased 6% per year or
19% for the three-year period
•Equity REIT dividends increased 6% per
year or 18% for the period, in line with GDP
•Equity REIT Funds From Operations (a
supplemental industry measure of
earnings) increased 12% per year or 41%
for the period
•Equity REITs delivered total returns (share
price appreciation plus reinvested
dividends) of 26% per year or 99% for the
period
•An initial $10,000 investment in the FTSE-
NAREIT All U.S. Equity REIT Index doubled to
nearly $20,000 over that same period
Increase in Fed Funds Rate and Growth of $10,000 Investment in
FTSE-NAREIT All U.S. Equity REIT Index from 2003 Q4 to 2006 Q4
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
$22,000
0%
1%
2%
3%
4%
5%
6%
7%
Dec-03
Feb-04
Apr-04
Jun-04
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
Jun-05
Aug-05
Oct-05
Dec-05
Feb-06
Apr-06
Jun-06
Aug-06
Oct-06
Dec-06
Fed Funds Rate (left axis)
Growth of $10,000 Initially Invested on 12/31/03 (right axis)

9. Equity REIT Income Is Not “Fixed Income”!
•REITs pay out at least 90% of
taxable income as dividends
•REIT dividend payouts have
increased more than four-fold over
the past 20 years
•For every $100 of dividends in
1992, REITs paid out $432 in
dividends in 2012
•REITs paid out a record $29 billion
in dividends in 2012.
GDP Growth Supports REIT Dividend Growth
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
Twenty Years of Dividend Growth
REITs paid out $423 in 2012 for every $100 they paid out in 1992

10. Five Drivers of Equity REIT Performance in
Addition to Interest Rates
Economy /
commercial real
estate demand
Limited supply of
new commercial
space
Rental income and
dividend growth
Higher property
asset values
Long run for real
estate cycle

11. Growing Economy Supports Commercial Real
Estate Demand and Equity REIT Returns
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Nominal GDP Growth Rate and U.S. Listed Equity REIT Total Returns
(FTSE-NAREIT All U.S. Equity REIT Index)
GDP Growth Rate FTSE NAREIT All U.S. Equity REITs TR

12. REITs are Raising Equity Capital
12
0
10
20
30
40
50
60
70
80
2005 2006 2007 2008 2009 2010 2011 2012 2013*
Debt
IPO
Preferred
Common
* Includes data through September 2013

13. “Third Inning” of Multi-Year Real Estate Cycle
•Commercial real estate cycles are
long –18 years on average from peak
to peak, a trend that holds true going
back all the way to 1930
•For the 17-year real estate cycle
from 1972-1989, an initial $10,000
investment in the FTSE-NAREIT All
U.S. Equity REIT Index grew to more
than $90,000
•For the 17 ½ year real estate cycle
from 1989-2007, an initial $10,000
investment in the FTSE-NAREIT All
U.S. Equity REIT Index grew to more
than $100,000
•We are 6 years into the current
cycle, which is off to a slower start
than historical cycles
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
$70,000
$80,000
$90,000
$100,000
$110,000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Years After Start of Real Estate Cycle
Growth of $10,000 Initially Invested at the Start
of Each Real Estate Market Cycle
9/72 - 8/89 (17 years) 8/89 - 1/07 (17½ years) 1/07 - present (6½ years)

14. Decline in Completions Signals Decreased
Supply
14
0
20
40
60
80
100
120
140
160
180
2008 2009 2010 2011 2012 2013
100 = Completions in
2008
Apartment
Office
Retail

15. Rent Growth Increases Signal Rise in
Demand
15
-12
-9
-6
-3
0
3
6
2008 2009 2010 2011 2012 2013
Percent,
Annualized
Apartment
Office
Retail

16. Disclaimer
16
NAREIT is the worldwide representative voice for REITs and listed real estate companies with an interest in U.S. real estate and
capital markets. Members are REITs and other businesses that own, operate and manage income-producing real estate, as well as
those firms and individuals who advise, study and service those businesses. NAREIT is the exclusive registered trademark of the
National Association of Real Estate Investment Trusts, Inc.®, 1875 I St., NW, Suite 600, Washington, DC 20006-5413. Follow us
on REIT.com.
Copyright© 2014 by the National Association of Real Estate Investment Trusts, Inc.® All rights reserved.
This information is solely educational in nature and is not intended by NAREIT to serve as the primary basis for any investment
decision. NAREIT is not acting as an investment adviser, investment fiduciary, broker, dealer or other market participant, and no
offer or solicitation to buy or sell any security or real estate investment is being made. Investments and solicitations for investment
must be made directly through an agent, employee or representative of a particular investment or fund and cannot be made through
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to be invested in a particular security or real estate investment.
All REIT data are derived from, and apply only to, publicly traded securities. While such data are believed to be reliable when
prepared or provided, such data are subject to change or restatement. NAREIT does not warrant or guarantee such data for
accuracy or completeness, and shall not be liable under any legal theory for such data or any errors or omissions therein. See
http://reit.com/TermsofUse.aspx for important information regarding this data, the underlying assumptions and the limitations of
NAREIT’s liability therefore, all of which are incorporated by reference herein.
Performance results are provided only as a barometer or measure of past performance, and future values will fluctuate from those
used in the underlying data. Any investment returns or performance data (past, hypothetical or otherwise) shown herein or in such
data are not necessarily indicative of future returns or performance.
Before an investment is made in any security, fund or investment, investors are strongly advised to request a copy of the
prospectus or other disclosure or investment documentation and read it carefully. Such prospectus or other information contains
important information about a security’s, fund’s or other investment’s objectives and strategies, risks and expenses. Investors
should read all such information carefully before making an investment decision or investing any funds. Investors should consult
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