The accounting and consulting firm PricewaterhouseCoopers (PwC) recently released a report, “2011 Emerging Trends in Real Estate” (which I’m quoting by permission) that makes predictions about real estate investment based on interviews with more than 875 individuals specializing in real estate.
Many of the conclusions are relevant to institutional investors only, but among the most salient is the strong predicted performance of publicly traded REITs.
Among their “Best Bets for 2011,” PwC recommends
Buy or Hold REITs. Do not expect another big run-up, but these companies appear well capitalized, can be accretive buyers, and concentrate strong core holdings in apartments and retail and office space. Liquidity is always a plus. Survey respondents expect solid cash-flowing returns.
I think that’s right on target: publicly traded REITs are in a much stronger competitive position than most other real estate investment managers, and are in a position to clean up going forward, both in terms of strong earnings growth as operating fundamentals begin to improve and in terms of acquiring good properties at good prices from those private-side investment managers.
As PwC explains,
Most public REITs have skated through the downturn, emerging in better shape than many capital market competitors. They have a strong advantage because of their reasonably leveraged balance sheets, as well as good access to capital through the public markets and lenders, which are attracted to steady, core-style cash flows. Unlike many private owners, they can keep up capital improvements and retain or lure new tenants with enticing concession packages. Plenty of dry powder also affords them the opportunity to cash in on accretive acquisitions at or near market bottom. In 'a cash-flow world,' REITs have a very good story. 'They've already recapped and pay meaningful dividends. It's the appeal of a hard asset plus liquidity.'
Disclosure: Author is long Vanguard REIT Index Fund and ING Real Estate Fund
Disclaimer: The opinions expressed in this post are my own and do not necessarily reflect those of the National Association of Real Estate Investment Trusts ((NAREIT)). Neither I nor NAREIT are acting as an investment advisor, investment fiduciary, broker, dealer or other market participant, nor is any offer or solicitation to buy or sell any security investment being made. This information is solely educational in nature and not intended to serve as the primary basis for any investment decision.