A formal study has not been performed, but some in the REIT bond market suggest that REIT bonds are low beta securities because of their unique characteristics relative to other corporate debt securities.

A REIT's hard assets, stable cash flows and protective debt covenants limit an investor's risk, relates Steven Schneider, a senior credit analyst with Principal Global Investors. The result is a security whose spreads don't move as widely as other corporate bonds.

Many factors influence bond spreads, but the spread movements of REIT bonds are less pronounced than other corporate bonds because the protective covenants and the implicit backing of real estate assets provide downside protection for REIT bondholders.

"When the market rallies, REIT bonds rally less than other securities," points out Mark Streeter, vice president at J.P. Morgan Securities. "And when spreads widen, REIT spreads widen less. This has been a growing phenomenon since 1998, when REIT spreads last materially under-performed the market."

More recently, Streeter notes, the spreads on BBB-rated corporate and bank bonds (both regarded as possessing similar characteristics as REIT unsecured debt) tightened between April 2003 and July 2003. REIT spreads also came in, but not to the same extent corporate and bank bonds narrowed.

Dan Sullivan, a managing director with Wachovia Securities, says REIT bonds should have a lower beta over the long term relative to corporate bonds for the same reasons Schneider cited earlier, but he isn't completely convinced. "REIT bond spreads still seem to be highly correlated to interest rates and equity prices than other corporates, which would cause the beta to be higher," he relates.