There are three industry benchmarks used to measure Fund-level
performance and property-level performance: the NCREIF Property Index; the NCREIF
Open-End Index; and the NCREIF Fund Index - Open End Diversified Core Equity
(NFI-ODCE). Out of the three, the NFI-ODCE currently offers the most appropriate
benchmark for evaluating MEPT's total performance.
The most widely used real estate benchmark, the NCREIF Property Index (NPI), is
composed of approximately 6,290 institutional grade, operating properties valued
at over $305 billion. The NPI is designed to measure the performance and return
characteristics of a set of core properties on an unleveraged basis. The properties
are pooled from different types of funds and single-investor portfolios, all with
varying investment strategies. The return data for the NPI can be analyzed by
sector and region, as well as subsectors and sub-regions. The return data is also
available on a historic basis and can be used for complex analysis. Since the
NPI is derived from property level performance, it does not measure the effect
of cash, leverage or management fees on returns, nor does it take into consideration
differences in property valuation frequency in the Index. When benchmarked against
MEPT's property level returns (operating real estate only), the NPI does provide
an apples to apples, or real estate to real estate, comparison of performance.
NCREIF has developed a sub-index, the NCREIF Open-End Index (OPI), comprised of
only those properties in the NPI owned by open-end funds. MEPT believes that the
sub-index offers an even more applicable benchmark than the NPI to measure the
performance of MEPT's real estate, since it allows for the comparison of properties
that are more frequently valued than those in the NPI as open-end funds have more
stringent valuation requirements than privately held and single investor portfolios.
The most relevant comparison would be the performance of MEPT's operating real
estate portfolio to the performance of the OPI. NewTower, MEPT's Trustee, relies
on this benchmark to conduct quarterly attribution analyses.
In 2005, NCREIF released an open-end Fund level index, the NCREIF Fund Index -
Open End Diversified Core Equity (NFI-ODCE). Different from the NPI, the NFI-ODCE
is comprised of only open-end funds, and excludes all the closed-end and separate
account real estate portfolios. The NFI-ODCE index reports on both a historical
and current basis the results of 26 open-end, commingled funds pursuing a core
investment strategy. Currently, the benchmark includes funds with total market
value of $93 billion. The index includes property investments at ownership share,
cash balances and leverage, allowing it to reflect the fund's actual asset ownership
positions and financing strategy. The NFI-ODCE is best suited as a benchmark from
MEPT since it specifically covers core funds and the effects of their cash balances
and leverage on fund performance. Since open-end funds in the NFI-ODCE have different
strategies, the funds may perform well at different times in the real estate/economic
cycle. Therefore, it makes sense to look at long-term comparisons of the NFI-ODCE
because the performance of the varying fund strategies can be tested throughout
all stages of the real estate cycle.
MEPT's long-term returns have consistently outpaced the benchmarks. A dollar invested
in MEPT in 1982 at the Fund's inception has significantly outgrown that same investment
in the NCREIF Property Index and the NFI-ODCE.
For more information, please visit www.ncreif.org