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Brad Case, Ph.D., CAIA is Vice President, Research & Industry Information for NAREIT, the National Association of Real Estate Investment Trusts ( Dr. Case has been researching commercial and residential real estate markets for more than 21 years and has published articles in... More
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  • Top REIT Picks for 2010 from Keefe, Bruyette & Woods
    Yesterday published an excellent article by Miriam Marcus Reimer summarizing analysis by Keefe Bruyette & Woods about publicly traded equity REITs.

    KBW expects publicly traded REIT total returns to average 9%-11% in 2011. Actually, that range sounds fairly conservative to me, since the REIT industry is in the bull-market part of the real estate cycle right now, whereas 11% is the long-term average total return for publicly traded REITs through bear markets as well as bull markets.  In fact, during each of the last two REIT bull markets, total returns averaged more than 20% per year for more than seven years.

    Indeed, the article quotes KBW's Sheila McGrath as saying
    REITs are back on offense and all eyes are on growth: growth prospects for core portfolios, growth from acquisitions and growth in dividends.
    The article also quotes Greg Genovese, President & CEO of Pacific Valley Realty Capital, on the REIT industry's upside potential.

    The article details KBW's thinking on eight REITs that they consider "top picks" for 2011:
    • Alexandria Real Estate Equities (NYSE:ARE)
    • AvalonBay Communities (NYSE:AVB)
    • DCT Industrial Trust (NYSE:DCT)
    • Glimcher Realty Trust (GRT)
    • Hersha Hospitality Trust (NYSE:HT)
    • Lexington Realty Trust (NYSE:LXP)
    • Ramco-Gershenson Properties Trust (NYSE:RPT)
    • Rayonier (NYSE:RYN)
    The article also mentions KBW "buy" recommendations on BRE Properties (NYSE:BRE), Corporate Office Properties Trust (NYSE:OFC), Hospitality Property Trust (NYSE:HPT), Post Properties (NYSE:PPS), and UDR (NYSE:UDR).

    It's really a very good article.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Author is long Vanguard REIT Index Fund.
    Jan 06 5:56 PM | Link | Comment!
  • 2011 Fitch Outlook for Health Care REITs
    In its 2011 Outlook for U.S. equity REITs, Fitch Ratings maintains a decidedly "positive" outlook for health care REITs, on the basis of stable property market fundamentals and favorable access to capital:

    In contrast to other commercial real estate sectors, nearly all Fitch-rated health care REITs have reported positive same store NOI growth during 2010 relative to 2009.

    Fitch-rated health care REITs have made the bulk of their health care facility investments in recent years in facilities funded by non-government sources, and thus their exposure to government reimbursement risk continues to decline.

    Operating conditions in senior housing will likely improve in 2011, as the pipeline of new construction is expected to drop below 2% of existing stock.

    Each medical office property typically has a granular tenant base, with lower tenant turnover than a comparable office building.  These dynamics create fairly stable operating performance for medical office properties.

    Capital access for life science tenants remains strong.  While some operators coudl continue to consolidate facilities, the industry continues to grow and long-term demand for well-constructed space in key locations is expected to remain solid.

    While many sectors within health care real estate are affected to some degree by challenging macroeconomic conditions, the property sector is affected less so because of the sheer volume of population growth in the over-70 age cohort.  When combined with limited new development activity, operating conditions have been far healthier than in most other major property types.
    In terms of access to capital,
    Most health care REITs rated by Fitch have good liquidity and strong balance sheets, with significant availability under revolving lines of credit, well-laddered debt maturities, and large unencumbered asset pools.  Additionally, health care REITs have demonstrated access to a variety of capital sources including secured and unsecured debt financing and the follow-on common equity market.  The unsecured bond market remains open for health care companies and banks continue to be interested in lending to health care REITs.
    In short,
    Strong long-term demographic trends are helping support demand, with fewer challenges at the property level than other sectors have experienced.  Many health care REITs have been active investors in 2010 and they are in a strong position to take advantage of opportunities to further grow and diversify their portfolios.
    The 12 publicly traded health care REITs (from largest to smallest) are HCP (NYSE:HCP), Ventas (NYSE:VTR), Health Care REIT (NYSE:HCN), Nationwide Health Properties (NYSE:NHP), Senior Housing Properties Trust (NYSE:SNH), Omega Healthcare Investors (NYSE:OHI), Healthcare Realty Trust (NYSE:HR), National Health Investors (NYSE:NHI), Medical Properties Trust (NYSE:MPW), LTC Properties (NYSE:LTC), Universal Health Realty Income Trust (NYSE:UHT), and Cogdell Spencer (NYSE:CSA).  Fitch's coverage universe includes HCP, VTR, HCN, NHP, and HR.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Author is long Vanguard REIT Index Fund and ING Real Estate Fund.
    Dec 17 1:45 PM | Link | Comment!
  • 2011 Fitch Outlook for Retail REITs
    In its 2011 Outlook for U.S. equity REITs, Fitch Ratings maintains a "stable" outlook for retail REITs, although with differences according to the type of retail space owned:

    Weak consumer demand due to high unemployment levels will fuel a muted economic recovery, pressuring retail REITs' ability to maintain occupancy and cash flow.  Offsetting weak fundamentals, most Fitch-rated retail REITs have improved and stabilized their balance sheets, capitalization, liquidity, and financial flexibility.  Investment-grade retail REITs continue to maintain a strong portfolio of unencumbered assets, which provided a source of contingent liquidity while bond and equity markets were inhospitable.

    Rents will continue to fall as market vacancies are expected to remain protractedly high aggravated by a weak recovery in consumer spending.  The outlook is not even across the retail space, however: Fitch expects strip center owners to be more negatively impacted by weak consumer demand, losing out to large format retail centers, which are expected to have more stable performance due to the strong in-fill locations of their properties and premier tenancy.  Fitch expects that properties located in infill locations with high barriers to entry will outperform properties located in less supply-constrained locations.  Offsetting the significant rent declines over the last four years is the long-term nature of many retail leases, allowing landlords to benefit from slight rent increases upon renewal or new lease signing.

    However, Fitch's rated universe has historically outperformed market averages and should continue to outperform in 2011.  While Property & Portfolio Research (NYSE:PPR) expects the occupancy rate to be 83% by the end of 2011 for the 54 major markets, Fitch expects its rated universe to maintain occupancy in the low to mid 90% range.  Fitch expects the retail REITs in its rated universe will continue to outperform broad market averages.  Large REITs with stable balance sheets and superior assets in desirable locations are able to attract tenants due to strong relationships with national retail chains.
    There are 27 publicly traded retail REITs.  Six of them own regional malls: Simon Property Group (NYSE:SPG), Macerich (NYSE:MAC), Taubman Centers (NYSE:TCO), CBL & Associates Properties (NYSE:CBL), Pennsylvania REIT (NYSE:PEI), and Glimcher Realty Trust (GRT).  Four own free-standing retail properties: Realty Income (NYSE:O), National Retail Properties (NYSE:NNN), Getty Realty (NYSE:GTY), and Agree Realty (NYSE:ADC).  The other 17 own neighborhood centers: Kimco Realty (NYSE:KIM), Federal Realty Investment Trust (NYSE:FRT), Regency Centers (NYSE:REG), Developers Diversified Realty (NYSE:DDR), Weingarten Realty Investors (NYSE:WRI), Alexander's (NYSE:ALX), Tanger Factory Outlet Centers (NYSE:SKT), Equity One (NYSE:EQY), Saul Centers (NYSE:BFS), Acadia Realty Trust (NYSE:AKR), Inland Real Estate (NYSE:IRC), Ramco-Gershenson Properties Trust (NYSE:RPT), Cedar Shopping Centers (NYSE:CDR), Urstadt-Biddle Properties (NYSE:UBA), Kite Realty Group (NYSE:KRG), Excel Trust (NYSE:EXL), and Roberts Realty Investors (NYSEMKT:RPI).

    The Fitch coverage universe includes nine retail REITs: SPG, O, NNN, KIM, FRT, REG, and DDR along with Entertainment Properties Trust (NYSE:EPR), which NAREIT classifies as a "specialty" REIT, and Centro NP LLC.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Additional disclosure: Author is long Vanguard REIT Fund and ING Real Estate Fund.
    Dec 17 1:21 PM | Link | Comment!
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