Mall, Office REITs Intriguing in 2013

11/14/2012 | By Carisa Chappell
Anthony Paolone, REIT analyst with J.P. Morgan, joined REIT.com for a video interview at REITWorld 2012: NAREIT’s Annual Convention at the Manchester Grand Hyatt in San Diego.

Earlier in the year, Paolone expressed enthusiasm for the regional mall sector in the second half of 2012. Paolone said the sector has lived up to his expectations, noting that mall stocks have been the second best performing sector so far this year.

“From an earnings point of view, the average mall REIT beat consensus estimates by about 4 percent pretty consistently across the board,” Paolone said.

Paolone offered his thoughts on promising sectors in 2013. They again include regional malls.

“As we look ahead to next year, we think the mall space will continue to do well. The fundamentals are there for them,” he said. “What we’re really watching closely is what transpires in the office group, which has been a very sluggish space due to fairly tepid job growth. The hope is that you start to see some improvement on that front.”

Paolone discussed some of the keys to a prosperous 2013. He cited two factors necessary to keep REIT stocks in the black.

“We hope to have a backdrop with consistent job growth and a better economic underpinning to commercial real estate fundamentals,” Paolone said. “Second is that we think from an investor point of view, a continued attraction to dividend-yielding stocks and just a more broad approach to investing in various segments in the market. What we don’t want to really see is folks leave REITs behind and rotate into other areas. The group has had very nice yield and a level of growth that has attracted capital. We hope to see that continue.”

Paolone said macroeconomic factors have helped provide the dominant story in the REIT industry this year.

“Over the course of the year, the macro backdrop has actually deteriorated, but REIT earnings have been revised generally up. It goes to the durability of the cash flow streams that these companies produce,” he said. “It’s pretty remarkable.”

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