Research - FEBRUARY 3, 2014

ODCE posts best fourth quarter since 2010

by Andrea Waitrovich, released 1/31/14

The NCREIF Open‐end Diversified Core Equity Index posted a 3.17 percent return in the fourth quarter. The index returned 3.56 percent in third quarter 2013 and 2.35 percent in fourth quarter 2012, according to the National Council of Real Estate Investment Fiduciaries.

The fourth quarter return was split between 1.25 percent income and 1.91 percent appreciation. Even though the returns this quarter are 39 basis points lower than the previous quarter, this is still the best fourth quarter since 2010 and the second-best fourth quarter since 2006. The ODCE return, which tracks open-end core funds, exceeded the NCREIF Property Index return of 2.53 percent.

The 64 basis point performance gap between ODCE and NPI is down from the past two quarters, but above the 48 basis point average since the recovery from the global financial crisis began in 2010.

ODCE’s industrial properties sector outperformed non-ODCE industrial by 59 basis points. ODCE retail and office properties also outperformed their non-ODCE counterparts, by 46 basis points and 44 basis points, respectively. Non-ODCE apartments outperformed ODCE apartments by 44 basis points.

The rolling four-quarter appreciation return increased again this quarter to 8.35 percent from 7.42 percent. The attribution of the rolling four-quarter appreciation return was split between 7.77 percent real estate and 0.55 percent debt valuation.

Occupancy remained the same as in the third quarter, at 90.2 percent. This is the highest occupancy rate since fourth quarter 2007. The leverage rate increased slightly this quarter to 22.3 percent from 21.9 percent. The leverage ratio has been within a percentage point of the long-term average, 21.8 percent, since early 2012.

Net investor cash flows remained positive, but down substantially from the previous quarter. They rose by approximately $240 million, the smallest net increase since 2003. Contributions declined to $2.5 billion and distributions rose to $2.2 billion. The number of investments in the ODCE funds rose to 2,109.

The ODCE consists of 21 funds with $138 billion of gross real estate assets and $110 billion of net real estate assets.

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