ING Investment Management published its "Global Property Securities 2011 Investment Outlook," detailing measured but very strong expectations for REIT returns globally. (I read about it in an InvestorDaily article by Wouter Klijn, which I found summarized in Real Estate Investment SmartBrief.) The bottom line:
We expect total returns for REITs to be in the 8-12% range in 2011. We believe that dividends will continue to be an important component of the total return for listed property companies. We expect the primary driver of real estate company returns in 2011 to be growth in cash flow per share.
Here are several additional quotes from the outlook:
- Earnings will accelerate: The market has grown more positive and fears of a "double-dip" recession have abated in most parts of the world. The "bottom-up" view from listed property companies appears to validate a thesis of continued improvement in cash flows.
- Dividends are expected to grow: Payout ratios have been conservative following a recalibration of dividend payout policies by many property companies following the credit crisis. We believe the trend for higher dividends will be particularly strong in the U.S.
- Rising interest rates need not be feared: Listed real estate often delivers positive returns in periods of economic improvement even if interest rates rise. For example, U.S. REITs generated a return above 20% in 1999/2000 when the Fed Funds rate increased by a total of 175 basis points.
- Large scale U.S. IPOs likely to emerge: Large-cap quality IPOs in the U.S. will be coming in 2011. We should see the re-emergence of quality real estate portfolios to the listed market, some of which were taken private during the privatization boom of 2004 to 2007. With U.S. REITs now trading at a modest premium to NAV and important debt maturity dates occurring over the next several years, we expect increased syndicate opportunities.
- REIT to bond yield spread supportive of investment thesis: The ability of listed property companies to make investments that are additive to cash flow per share remains fundamental to the value creation for shareholders.
Here is ING's outlook for specific global markets:
- Hong Kong: We expect earnings growth of 15-20%. We expect Hong Kong/China property companies to outperform over the next 12 months.
- Japan: We expect a 5-10% total return over the next 12 months.
- Singapore: We expect S-REITs to generate a total return of 5-10% over the next 12 months.
- Continental Europe: We expect a 5-10% total return over the next 12 months consisting of a dividend yield in the 5-6% range, constant multiples and modestly positive earnings growth.
- United Kingdom: We expect a total return of 8-12% over the next 12 months including dividend yields in the 4-5% range.
- Canada: We expect a total return of 8-12% over the next 12 months consisting of a dividend yield in the 5-6% range, constant earnings multiples and 3-5% earnings growth.
- United States: We expect a total return of 8-12% over the next 12 months consisting of a dividend yield in the 4% range, constant earnings multiples and mid single-digit earnings growth.
There are several ETFs that investors can use to move on ING's outlook, including the following (two of which I've written about):
- Vanguard REIT ETF (VNQ)
- SPDR Dow Jones REIT ETF (RWR)
- SPDR Dow Jones Global Real Estate ETF (RWO)
- SPDR Dow Jones International Real Estate ETF (RWX)
- First Trust FTSE EPRA/NAREIT Global Real Estate Index Fund (FFR
- iShares FTSE EPRA/NAREIT Developed Real Estate ex-U.S. (IFGL)
- iShares FTSE EPRA/NAREIT Developed Asia (IFAS)
- iShares FTSE EPRA/NAREIT Developed Europe (IFEU)
- iShares FTSE EPRA/NAREIT North America (IFNA)
Disclosure: I am long Vanguard REIT Index Fund and ING Global 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.