Investor’s views of REITs have evolved over the years from a place of skepticism to understanding, according to Joel Beam, portfolio manager with Forward Management.
“I think that skepticism has been replaced over the years by what REITs bring to the table, both in terms of the return opportunities that they provide and the promise of sustainable long returns, as well as just the overall qualities of the companies and their access to capital,” Beam told REIT.com in a video interview filmed in New York during REITWeek 2012: NAREIT’s Investor Forum.
Beam added that the “enviably low cost to capital” offered by REITs, along with strong balance sheets, are among the ongoing themes in today’s REIT market. He anticipates that this trend will continue in the coming years.
“We see REITs in a really auspicious position in respect to developments in the economy. A lot of commercial property assets are probably going to need to be rationalized in the new few years,” Beam said, adding that REITs’ balance sheet strength puts them in a strong position to be part of the solution as banks and other asset owners need to refinance debt over the next few years.
“I think assets will probably change hands and REITs will increase market share. That’s a trend we will probably see accelerating,” he said.
Beam also added that REIT dividends are “tremendously valuable” to investors. He pointed out that his company’s view is that dividends represented about half of total returns over time.
“We’re in a longer-yield environment, but even notwithstanding that, the dividends that REITs represent offer a very substantial income component of return, and they are poised to grow over time, making them really desirable among investors,” he said.
While he added that investors want total returns, he said it’s clear that they also treasure income as a significant portion of that total return.