Article Excerpt:
TWST: We are three-quarters of the way through 2006. How have REITs done so far this year?Mr. Taylor: REITs have had an absolutely huge year, with a total return of about 25%. That's a combination of several factors. First, interest rates seem to have hit their peak. Second, fundamentals are very good. Third, the demand for real estate as an asset class continues to be very strong.
TWST: If we go back a year or two, the general conviction was that the REIT
story was over and they weren't going to outperform anymore. What has changed?
Mr. Taylor: Nothing has changed; it's just that those other prognosticators were
wrong. We came into the year thinking that the REITs could do a 10% to 12% total
return, and I thought they could actually do better than that. We put that
number out there to be conservative, but we thought it was conservative for
exactly the reasons I mentioned earlier. First, when interest rates peak, that
is good for equities, pure and simple. Second, the apartment fundamentals are
rapidly improving, the office fundamentals are steadily improving, and the
retail stocks continue to generate very, very consistent earnings growth. So
with the fundamentals in our favor and the macro picture looking benign to
helpful, it was a good combination for stocks to go up.
Tickers included in this excerpt: AIV, ASN, AVB, BRE, CPT, EQR, GGP, MAC, PPS, SPG, TCO
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