Real Estate Investment Trusts

REIT Magazine Reader Survey

I have always been somewhat skeptical when I hear anyone tout the results of a new survey as definitive proof of some universal truth. Maybe I am just jaded, but I always want to know who was surveyed, by whom and what was their agenda.

I mean, if nine out of every 10 dentists really thought one toothpaste was significantly better than all other brands, we wouldn’t need an entire toothpaste aisle at every grocery store.

As we all learned last election cycle, opinion surveys or polls can be even more misleading. Pollsters often either do a poor job sampling, ask the wrong questions or are misled by respondents.

I say all that so you realize that when I discuss the results of our biennial REIT magazine reader survey, I have made sure they pass the sniff test. We surveyed 1,000 actual readers of the publication with a range of job functions and perspectives on the industry.

If you were one of those individuals who participated in the survey, thank you. The print and online survey featured 25 questions about the content, design, usefulness and overall quality of the magazine. I am pleased to report that the feedback we received was very positive and confirmed that our readers find value in the publication. Some of the noteworthy results:

• The typical respondent reads each issue of the magazine, and nearly half of the respondents pass the magazine on to at least one colleague.
• Along with the Wall Street Journal and Bloomberg, REIT magazine is among the top three sources for news on real estate investment—NAREIT’s website, REIT.com, ranked fourth.
• Industry transactions, legislative issues and company profiles ranked as the most popular content.
• Nearly 75 percent of all respondents took some sort of action, such as sending an email inquiry or visiting a company website, after seeing something in the magazine.

When asked for any improvements they would make to the magazine, several readers said they would like to see the content get more in-depth. That is not surprising considering the average survey respondent has spent more than 13 years in some aspect of the real estate industry. Roughly a quarter of them had more than 20 years of experience. 

This feedback is very important to help us continue to refine the magazine, and all of NAREIT’s media offerings, to communicate the REIT and real estate investment story more effectively.  In fact, you can expect to see many of those changes in the next issue. Stay tuned…

(Why?)

Published at Tue, 19 Sep 2017 13:35:41 +0000

4 Quick Questions with Dominique Moerenhout, CEO of European Public Real Estate Association

What impact is the political uncertainty across Europe having on the listed real estate market?

The political uncertainties in Europe have retreated substantially since the recent election of Emmanuel Macron as the new president of France, but a major question mark remains over the timing and outcome of the elections in Italy.

The European listed real estate sector has not been affected by this environment any more than what we have seen with the traditional equities market. However, companies in the United Kingdom have seen some local challenges related to Brexit.

What are some of the main challenges and opportunities in terms of expanding the REIT regime in Europe?

Our biggest focus for expansion is currently centered around two countries, namely Poland and Sweden.

EPRA is actively involved in Poland, where REIT legislation is under development. We are talking here about… the sixth-largest economy in Europe, so this is definitely a market to watch closely. A second draft REIT bill was recently proposed, and we might expect a REIT regime there in 2018.

Sweden is less advanced in the process, but has the fourth-largest listed real estate sector in Europe. So, naturally, we are working with the national associations and property companies to educate and advocate on the benefits of adopting the REIT regime in their country.

What steps is EPRA taking to attract generalist investors?

Last year’s designation of listed real estate as a separate equity sector within [the Global Industry Classification Standard] represented a very positive milestone in the way generalist investors perceive our industry.

We are conscious that it may take some time for those investors to increase their asset allocation to listed real estate, but even small shifts in sentiment can go a long way. That’s one of the key reasons why EPRA’s outreach program focuses on insurance companies, pension funds, private banks, family offices and their respective local associations. This is really the top priority today for EPRA in Europe.

How about other priorities?

Our main priority at present is the reduction of the capital requirements under the European Solvency II regulations. The EU decision-makers adopted these regulations some years ago, requiring insurers to weight “riskier” investment asset classes more heavily in the capital levels. Listed real estate is categorized with the general equities asset class under the rules and, therefore, attracts heavier capital requirements.  Our objective is to reduce (the capital requirements) to the level of direct property investments.

We have to convince the EU regulators that investing in the listed real estate sector is not riskier than investing directly in bricks and mortar. Today, we see a window of opportunity because of an ongoing review of the rules. This could have a massive impact on the total market capitalization in Europe – it could even double in size.

I also want to continue the fantastic work that EPRA has been doing over the last several years on the financial Best Practices Recommendations (BPR) and address investors’ growing interest in environmental, social and governance matters. We hope to bring the sustainability BPR up to the same level of adoption as the financial ones.

Dominique Moerenhout became EPRA’s new CEO in March, succeeding Philip Charls. Moerenhout previously served as CEO for Luxembourg and Belgium at BNP Paribas Real Estate Investment Management.

(Why?)

Published at Tue, 19 Sep 2017 13:50:35 +0000

The Durability of the REIT Approach to Real Estate Investment

As my term as 2017 NAREIT Chair draws to a close, I’m finding that my experiences in the past year have done nothing but reinforce my confidence in the durability of the REIT approach to real estate investment.

That starts with the quality of the management teams across the industry. We see their acumen on display every day through their leadership of best-in-class real estate companies. My role as Chair has given me an even greater appreciation for the thoughtful insight these executives bring to broader conversations about financial markets, public policy and more.

Our dynamic and increasingly global economy rewards wisdom, foresight and prudent leadership at the head of any company in any industry. Fortunately, those qualities don’t come in short supply among NAREIT’s members.

My admiration doesn’t end at the C-suite, though. The depth of talent executing on the visions laid out by these management teams plays a vital role in ensuring the success of REITs as they support how people around the world live, work and play.

The capabilities of the people who make up our industry have undoubtedly contributed to REITs’ track record of solid financial returns to investors. They’ve also played a part in the growing recognition of REITs and real estate as a fundamental element of diversified investment portfolios. We saw tangible evidence of this in 2016 with the elevation of real estate to its own sector under the Global Industry Classification Standard (GICS) by S&P Dow Jones Indices and MSCI.

This year brought more gratifying developments in the investment community. Importantly, investment firm Vanguard, the largest REIT investor in the world, is seeking shareholder approval to change the benchmark for its REIT index funds, meaning that the funds would invest in a broader range of REITs and publicly traded real estate companies. More REITs are joining the ranks of major stock market indexes such as the S&P 500 as well.

Since REITs were introduced in the United States nearly 60 years ago, NAREIT has been instrumental in preserving, perfecting and promoting the REIT approach to real estate investment. NAREIT represents REITs in the policymaking process on all levels, but it also helps tell our story to investors, financial analysts, the media and the broader public. As the global economy evolves, NAREIT provides instructive analysis and insight as to where REITs have been and where they are headed. It also creates the spaces for collaboration and thought leadership among its members that are necessary to address key issues facing REITs and real estate investment.

I’m deeply grateful for the opportunity I’ve had to serve the REIT community as 2017 NAREIT Chair and would like to thank CEO Steve Wechsler and the NAREIT staff for all of their hard work in the last year. Moreover, I want to express my gratitude to NAREIT’s members as a whole for all of their support. Working together through NAREIT helps ensure that REITs will remain vibrant and effective building blocks of the economy for years to come.

I look forward to seeing all of you in Dallas at REITWorld 2017.

Tim Naughton
Chairman & CEO
AvalonBay Communities, Inc.

(Why?)

Published at Mon, 18 Sep 2017 17:15:07 +0000

Neuberger Berman Portfolio Manager: REITs Best Way to Build Global Real Estate Portfolio

In the latest episode of The REIT Report: NAREIT’s Weekly Podcast, portfolio manager Gillian Tiltman of Neuberger Berman discussed the importance of global REIT allocations.

Tiltman co-authored a paper on the characteristics of REIT investment that Neuberger Berman released earlier this month. The paper advocated that listed real estate securities provide the best way for real estate investors to design global portfolios. Tiltman discussed why some investors remain skeptical about the divergence of REIT returns and the performance of the broader equities markets.

Tiltman noted that some investors, especially in Europe, still show a preference for direct real estate investment and open-ended property funds over investing in REITs and publicly traded real estate companies. She said that while REIT stocks can behave like the equity market in the short term, “over the long term, you’re fundamentally buying that real estate.” With the growth of REITs around the world, they now provide “the best and in a lot of ways the only way to build a global real estate portfolio, and you do that in an incredibly liquid way.”

Tiltman also emphasized the diversification benefits of global REITs for investment portfolios.

“It has been proven that the interregional correlation of REITs is much lower than that of bonds and equities,” she said. “Real estate in one part of the world trades very differently than real estate in another.”

Tiltman pointed out that the liquidity of REITs offers another advantage.

“It’s very difficult to buy and sell assets quickly, whereas if you’re buying and selling a stock, you have the advantage of being able to get that real estate exposure, but with the liquidity of the stock market. We like to say that buying REITs is buying bricks and mortar with liquidity.”

(Subscribe to The REIT Report via iTunes.)

(Why?)

Published at Fri, 15 Sep 2017 13:57:26 +0000

FTSE NAREIT All REITs Index Up 0.6% in August

REIT returns were flat in August, as investors adopted a hesitant stance amid broader macroeconomic uncertainty, according to market observers. 

“August was a desultory month for investors in listed U.S. REITs and most other assets,” said Brad Case, NAREIT senior vice president for research and industry information.  

The total returns of the FTSE NAREIT All REITs Index rose 0.6 percent in August, while the S&P 500 posted a total return of 0.3 percent. For the first eight months of 2017, total returns of the FTSE NAREIT All REITs Index gained 7.4 percent, while the S&P 500 returned 11.9 percent. 

Total returns of the FTSE/NAREIT All Equity REITs Index gained 0.6 percent in August and 6.9 percent through the first eight months of the year. The total returns of the FTSE NAREIT Mortgage REIT Index rose 1.5 percent in August and 18.3 percent for the year to Aug 31. 

The yield on the 10-year Treasury note dropped 0.2 percent in August. Through Aug. 31, the yield was down 0.3 percent for the year. 

Michael Gorman, a managing director at BTIG, LLC, said he sees a “lack of conviction” in the market right now, which is resulting in a continuation of existing trends. The industrial real estate sector is experiencing above-average growth, while retail REITs remain under pressure. Industrial REITs posted total returns of 3.6 percent in August. Retail REITs saw returns fall 1.7 percent in the same time period. 

Jeff Langbaum, senior REIT analyst at Bloomberg Intelligence, said market moves were “sector-specific and tenant-driven” in August. While REIT performance was flat during the month, Langbaum pointed out that variations among different property segments underscored their “specific dynamics.” 

Until mid-to-late 2016, the REIT market was largely driven by interest rates and moves in the 10-year Treasury note, Langbaum observed. “Now it’s clearly shifted to being driven by fundamentals and tenant performance,” he explained. 

Interest rate movements are less of a factor for investors than they were previously, but the fact that the Federal Reserve is generally raising rates remains in the back of their minds, Gorman said. 

Infrastructure REITs also made gains, with total returns of 7.5 percent in August. Data center REIT total returns rose 4.1 percent for the month. 

Health care REIT returns dropped 0.1 percent for the month. Analysts said concerns about the skilled nursing segment weighed on the shares. 

Meanwhile, Case noted that REITs continue to outperform the non-REIT companies that are most similar to them. He pointed out that this year’s stock rally has been led by technology companies—and their stock prices were pushed up even more in August.

(Why?)

Published at Fri, 01 Sep 2017 14:22:19 +0000

Green Street Consultant Says Market Open to “Non-traditional” REIT IPOs

In the latest episode of The REIT Report: NAREIT’s Weekly Podcast, Dirk Aulabaugh, managing director with Green Street’s Advisory Group, gave his thoughts on the current environment for REIT initial public offerings.

Through the middle of August, four REIT IPOs have taken place, starting with the Invitation Homes (NYSE: IVH) offering in January that raised nearly $2 billion. Currently, however, Aulabaugh noted that the stocks of most REITs in the more “traditional” property sectors, such as office and multifamily, are trading at discounts to net asset value. On the other hand, newer sectors, such as data centers, are trading at premiums.

“In other words, if you own assets that fall into the non-traditional bucket, an IPO isn’t off the table right now,” Aulabaugh said.

The growth of e-commerce likely means the financial markets would be receptive to an industrial REIT IPO, according to Aulabaugh. IPOs of data center REITs also would be viewed favorably.

On the other hand, some mall REITs could turn into privatization targets, Aulabaugh said. “The malls are going to require capital and time to execute a creative strategy to reinvigorate the malls or convert them to a higher, better use,” he said, “and the public markets might not be the best place for that to happen.”

(Subscribe to The REIT Report via iTunes.)

(Why?)

Published at Fri, 18 Aug 2017 17:11:23 +0000

Real Estate Fund Manager Says Europe Undervalued

In the latest episode of The REIT Report: NAREIT’s Weekly Podcast, portfolio manager Jay Leupp of Lazard Asset Management discussed his outlook for global real estate investment in the remainder of 2017.

Regarding the fallout from the Brexit vote, Leupp noted that he viewed the situation as a buying opportunity for U.K. real estate when the vote was held 12 months ago. Areas such as urban London presented attractive valuations, according to Leupp, offering opportunities to add to existing investment positions.

In terms of potentially undervalued markets, Leupp pointed to continental Europe. “We believe that the high-quality assets, particularly in the office, industrial and retail sectors are probably slightly undervalued,” he said. Leupp also singled out the German residential market as an attractive investment target.

In Asia, Leupp said he remains bullish on Hong Kong and China. He also noted emerging markets such as the Philippines are promising.

Leupp said the strong performance of property markets could be building to “a maturation in fundamentals” in some sectors. In general, “we’re being careful,” Leupp said.

(Subscribe to The REIT Report via iTunes.)

(Why?)

Published at Mon, 14 Aug 2017 17:32:59 +0000

MFA Financial Co-CEO William Gorin Dies at Age 59

MFA Financial, Inc. (NYSE: MFA) board member and co-CEO William Gorin has died at the age of 59, the company announced Aug. 11.

Gorin joined MFA in 1997 and was named CEO in January 2014. Before becoming CEO, Gorin served as president from 2008 to 2013. From 1997 to 2008, Gorin was executive vice president, and from 2001 to September 2010 he served as CFO. In addition, Gorin was treasurer and secretary at MFA.

Gorin also served as chair of NAREIT’s Mortgage REIT Council.

NAREIT President and CEO Steve Wechsler described Gorin as a “thoughtful and well-respected member of the REIT community” for two decades.

“Bill provided very effective and notably constructive leadership to the REIT industry as chair of NAREIT’s Mortgage REIT Council. His dedication to our industry was clearly evident as was his warmth, goodwill and graciousness to colleagues. Bill will be missed dearly by NAREIT and the REIT industry,” Wechsler said.

Prior to joining MFA, Gorin held various positions with PaineWebber Inc./Kidder, Peabody & Co. Inc., and Shearson Lehman Hutton, Inc. /E.F. Hutton & Company Inc.

Gorin is survived by his wife Jody and two children, Allie and Matthew. He graduated from Brandeis University and received an MBA from Stanford University.

(Why?)

Published at Mon, 14 Aug 2017 16:46:20 +0000

Single-Family Rental REITs Invitation Homes, Starwood Waypoint to Merge

Invitation Homes(NYSE: INVH) said Aug. 10 that it will combine with Starwood Waypoint Homes(NYSE: SFR) in an all-stock deal described by the two single-family rental housing REITs as a “merger of equals.”

Shares of both companies reacted positively to the news. In mid-morning trading, Invitation Homes share prices were 4.9 percent higher from the previous day’s closing price of $22.02. Starwood Waypoint share prices had gained 5.3 percent to $35.41.

Under the terms of the deal, each Starwood Waypoint Homes share of stock will be converted into 1.614 Invitation Homes shares, based on a fixed exchange ratio. Invitation Homes stockholders will own approximately 59 percent of the combined company’s stock, with current Starwood Waypoint Homes stockholders owning the remainder. The company will operate under the name Invitation Homes, and Starwood Waypoint Homes CEO Fred Tuomi will serve as CEO. Bryce Blair, currently chairman of Invitation Homes, will become chairman of the new entity.

The equity market capitalization of the combined company will be approximately $11 billion, based on the Aug. 9 closing share prices for both companies.

In a conference call, Tuomi described the two companies as “pioneers” of the single-family rental space. He stressed that Invitation Homes and Starwood Waypoint Homes are “nearly identical,” with 83 percent of the geographic footprint of their portfolios overlapping. The new company’s portfolio will contain approximately 82,000 single-family homes, located in 17 markets primarily in the Western United States and Florida.

Initial Reaction Positive

Jade Rahmani and Ryan Tomasello, analysts at Keefe, Bruyette & Woods, commented that coupling Invitation Homes’ “local density and boots on the ground” with Starwood Waypoint’s emphasis on technology should help create a “leading, sustainable residential rental platform that over the long term has growth potential within both the single-family rental and broader residential housing markets.”

Citi Research analyst Michael Bilerman pointed out that the combined company will benefit from larger size and scale, geographic market overlap, and operational and general and administrative (G&A) synergies.

In terms of the broader industry implications, the transaction bolsters the scale and operational efficiency of leading players, according to Rahmani and Tomasello. “The transaction, if successful and well-received, could increase the likelihood of additional mergers in the industry,” they said.

Meanwhile, Tuomi noted that although the combined company will be the largest single-family rental company in the U.S., its portfolio still represents just a half percent of the nearly 16 million single-family homes for rent. Less than 2 percent of the nation’s single-family rental homes are institutionally owned, he added.

According to Tuomi, “demographic tailwinds remain at our feet,” as supply and demand fundamentals look favorable for the foreseeable future.

Invitation Homes, founded by private equity firm Blackstone in 2012, raised more than $1.5 billion in an initial public offering (IPO) in January. Following the proposed merger, Blackstone’s ownership stake in the combined company will drop to 41 percent from 70 percent in the current, stand-alone Invitation Homes.

The transaction is expected to close by the end of the year.

(Why?)

Published at Thu, 10 Aug 2017 19:07:24 +0000

REIT Returns Modestly Higher in July

REIT returns were modestly higher in July, although certain property segments continue to post outsized gains.

The total returns of the FTSE NAREIT All REITs Index rose 1.2 percent in July, while the S&P 500 posted a total return of 2.1 percent. For the first seven months of 2017, total returns of the FTSE NAREIT All REITs Index gained 6.7 percent, while the S&P 500 returned 11.6 percent.

Total returns of the FTSE/NAREIT All Equity REITs Index gained 1.3 percent in July and 6.2 percent through the first seven months of the year. The total return of the FTSE NAREIT Mortgage REIT Index rose 0.4 percent in July and 16.5 percent for the year to July 31.

The yield on the 10-year Treasury note was flat in July. Through July 31, it dropped 0.1 percent for the year.

“Overall, we’re seeing a decent amount of growth, but there’s been no break-out growth from the REIT sector,” said David Rodgers, senior analyst at Robert W. Baird & Co. He pointed out that the more moderate pace of growth “makes sense” following REITs’ outperformance of the last several years.

Meanwhile, Brad Case, NAREIT senior vice president for research and industry information, pointed out that the stock market rally seen this year has been concentrated in stocks that are already expensive relative to their earnings, particularly large-cap growth stocks.

While some REITs are large-cap stocks, “they’re not large relative to the behemoths that dominate that part of the market,” Case explained. He noted that a more accurate assessment of REITs can be made by comparing their performance to that of small-cap value stocks, which historically are most similar to REITs.

Small-cap value stocks, as measured by the Russell 2000 Value Index, gained 0.6 percent during July and 1.2 percent year-to-date, Case noted.

“Investors hold REITs because they want the asset class diversification benefits of real estate, and this year has been a good example of that because REITs have so strongly outperformed the non-REIT stocks that are otherwise most similar to them,” Case said.

Meanwhile, Rodgers stressed that as the real estate cycle becomes more advanced, investors are becoming increasingly selective as to which REIT segments they own. That has led to healthy gains in several REIT property types.

Industrial REITs posted returns of 3.5 percent in July and 15.1 percent for the year to July 31. According to Rodgers, second quarter industrial earnings calls have generally been more bullish compared to the previous quarter.

Returns for data center REITs totaled 4.1 percent in July and 26.6 percent through July 31. Manufactured home REITs recorded returns of 1.2 percent in July and 20.1 percent for the first seven months of the year. Infrastructure REITs also had a solid performance, with return of 2.1 percent and 24.8 percent year-to-date.

Shopping center REIT returns of 7.7 percent led the pack in July, although returns are 11.7 percent lower year-to-date.

(Why?)

Published at Tue, 01 Aug 2017 19:58:44 +0000