Article Excerpt:
TWST: We've had another great year for REITs. What's going on? I thought this was supposed to end at some point.Mr. Lucas: That has certainly been our thought as well. We fully expected returns to moderate this year to more historical low to mid-double-digit levels after posting more than 80% total returns over the prior three years. With REITs up nearly 30% so far this year, our earlier expectations have clearly been surpassed by actual results. We believe that REITs have shined in light of a low return expectation environment for equities. REIT valuations have been stretched and supported by a combination of low, stable interest rates, and significant private equity funds flow into the real estate sector. The equity market has gained some traction recently, but has still underachieved relative to REIT returns. So REITs have continued to be the investment of choice as part of the overall portfolio asset allocation strategy.
TWST: If you look at those various factors, how would you rank them? What has
been most important in prolonging this good performance?
Mr. Lucas: It probably, quite honestly, has been the low return expectation in
the broader equity markets. The private capital that has been active in taking
public companies private in the REIT space in particular has done a lot to keep
valuations high. But at the end of the day, we think that at the margin, the low
return expectations across all equities are keeping REITs at the forefront in
terms of investor choices.
Tickers included in this excerpt: AVB, HCN, HST, LHO, OFC, WRS
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