Real estate investment trusts, or REITS, give investors an easy way to invest in commercial and non-commercial property assets. About 80 million Americans have money in the Steady Eddie asset class that historically returns about 9-10 percent annually according to trade group NAREIT.
Mizuho gathered 30+ real estate companies, including eight from Hong Kong and Japan, at its annual Global REIT / Real Estate Conference in New York. Institutional investors and C-suite executives discussed the most promising and profitable trends in the space at the Lotte New York Palace Hotel.
A lunch panel looking at the outlook for REITS was moderated by Senior Mizuho REIT Analyst Haendel St. Juste and featured Mizuho Chief Economist Steve Ricchiuto with real estate division leaders Noel Purcell, Head of Real Estate Banking, and J.T. Deignan, Head of Real Estate, Lodging & Gaming Equity Capital Markets. Yosuke Ohata, Senior Analyst covering Japanese REITS, based in Tokyo, also contributed comments on market conditions there.
Key highlights from the panel include:
1) Quality > Quantity. With the state of the real estate market continually evolving, Noel and J.T. agree that the focus for businesses is growing core assets through disciplined acquisitions, redevelopment of existing portfolios and development of new assets, depending on the sub-sector. Noel suggested that in past cycles, certain businesses tended to overspend on non-core assets, resulting in lower-quality returns at the asset level and stock prices. The focus should be on quality of the assets, rather than quantity. J.T. elaborated further, agreeing that honing in on disciplined, laser-focused opportunities is where management teams and businesses will see the best results, ultimately garnering superior stock returns.
2) REITs & ETFs are dominating the landscape. Over the past 5-10 years, we have witnessed explosive growth in the REIT sector. Today, we have 34 REITs represented in the S&P 500 and approximately 150 ETFs that have exposure to the sector. Daily trading volumes via ETFs has exploded as real estate has solidified itself as a respected, well-known asset class, opening its doors to a much broader investor community. Steve emphasized the impact these new products, along with the growth of passive investors in the space, have had. Namely, the power of market-makers has been reduced and there is less control day-to-day. He also suggested looking beyond micro issues to macro issues, following an established trend in the bond markets which have a long track record of indexing.
3) M&A and IPOs are welcoming new players. According to J.T., the incentives to go public now are very different than they used to be, particularly for real estate companies. The cost of capital in private markets is very competitive to public capital today. That said, investors have been very constructive in supporting new asset classes in the publicly-traded REIT market. Mizuho’s real estate leaders are not necessarily seeing more companies coming to the market (when compared to the last cycle), but the quality and uniqueness of the IPOs are compelling to investors. J.T. pointed out that new sectors, such as gaming REITs, further support and growth of newer sectors, like data centers and tower REITs, confirming the growing appetite of a diverse investor community and the overall health of the REIT market.
Mizuho’s Global REIT/Real Estate Conference featured one-on-one meetings, as well as the panel on the Outlook for REITS, Real Estate and the Economy. For more information about Mizuho events, email Mizuho Corporate Access at [email protected].