Real Estate Investment Trusts: another channel to invest in Real Estate (Part II)
The real estate industry has been afflicted with a lot of negative news and forecasts, specially with regards to the residential sector. However, real estate in general comprise a diverse type of property portfolio. It is hard to generalize the overall outlook of the industry because it performs and caters to different markets.
An article in Business Week Online about "The Rundown on REITs" written by Sam Stovall, will give you a good insight about the different REITs, their historical and current performance. The article also discussed about what the experts have to say regarding the fundamental outlook for the different REITs found in the S&P 1500 index.
Here are excerpts of the different outlooks from the article:
Diversified REIT
"S&P has a neutral fundamental outlook on this group, which holds a mix of office, industrial, retail and in some cases, residential properties. S&P expects diversified REITs with significant exposure to retail, industrial, health-care, or office properties to see growth, based on our view of above-average fundamentals."
Industrial REIT
"Overall, we believe industrial REITs should continue to see growth based on what we view as improving fundamentals. We expect REITs focused on supply-constrained markets and those whose properties are closely tied to global trade to improve the fastest among the sector. We look for less robust results from industrial REITs with relatively generic space in low-barrier-to entry markets, but even these companies are showing some improvement."
Office REIT
"S&P’s fundamental outlook on the office REITs subindustry is positive, based on continuing U.S. employment growth. We also believe positive net absorption of office space will lead to moderately rising rental rates on average, and continued growth in cash flow from cyclical lows."
Residential REIT
"S&P’s fundamental outlook for the residential REITs subindustry is neutral. During the March quarter, we believe vacancy rates for rental apartments increased for the second consecutive reporting period, reflecting seasonality as well as renewed supply."
"We see a few more challenges awaiting these companies later in 2007."
"Long term, we think fundamentals for residential REITs are more positive. S&P forecasts a gradual decline in housing starts through 2008, as well as steady growth in household formation due to increased immigration as "echo-boomers" enter the work force."
Retail REIT
"S&P has a positive fundamental outlook on the retail REITs subindustry. With U.S. real gross domestic product continuing to rise, consumer spending increasing, and retailers expanding, we believe same-property revenue and net operating income will likely be positive across the industry over the next 12 months."
Specialized REIT
"S&P has a positive fundamental outlook on the specialized REIT subindustry. We believe the strong macro economy has generated increased demand for a number of the services provided by specialized REITs, including lodging, self storage, and timber. "
"S&P sees health-care REITs as less affected by the general economy, with their growth influenced by trends in government reimbursement policies and population demographics. We believe stability in government policy and the aging baby boomer population are positive trends for health care REITs."
I would recommend, you read the whole article "Rundown on REITs" written by Sam Stovall for Business Week Online for a thorough overview of the different REITs. In fact, you can even use the information to evaluate the investment potential of the different types of real estate.
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