Asset management firms that offer real estate investment trusts recommend advisors put 5-10% of their clients’ assets in the sector, citing strong fundamentals. Participants in a real assets panel at Monday’s Altenative Mutual Funds Forum in Boston said REITS have healthy balance sheets and access to capital and will continue to benefit from a lack of new supply in gateway markets around the country. They also cited diversification and inflation-hedging characteristics as reasons advisors should add REITS to their alternatives allocation buckets.
Since April, 2009, REITS have raised more than $100 billion, according to Michael Hudgins, client portfolio manager at JPMorgan Asset Management. Cash flows are strong, occupancy rates are rising and REITS are experiencing positive net operation income for the last four quarters, he added. Though they were trading at strong premiums to net asset value for some time, REITS are now at an approximate 10% discount, Hudgins noted.
Scott Craig, a portfolio manager on Eaton Vance’s real estate investment team, added that REITS have staggered the maturities on their debt obligations and extended them. Weaker REITS have exited the market via leveraged buyouts and mergers and acquisitions. There are only 85 public REITS today, compared to 200 13 years ago, he noted.
Ian Goltra, portfolio manager at Forward Management, noted that commercial REITS are leveraged on average just 40-60% of the value of their assets. In addition, demand and rents will continue to rise due to the shutdown of the supply pipeline. Only half of 1% of existing supply is being built, he said. The vast bulk of capital in public REITS is invested in gateway markets, he pointed out.