REIT Valuations Fair Given Market Expectations

Speaking prior to the Georgetown University McDonough School of Business and NAREIT Spring 2011 Real Estate Luminary Series, Robert Steers, co-chairman and co-CEO of Cohen & Steers, said the strong run REITs have been on can continue for the rest of this year.

"We've seen terrific capital flows coming into the sector, mainly by institutional investors, and it has been a global phenomenon," said Steers, who emceed the event and is also chairman of the board of advisors of Georgetown University McDonough School of Business. "This year, for the first time, we are seeing retail investors come into real estate mutual funds."

Steers said the industry technicals remain very strong and starting this year and accelerating next year will be a fundamentals lift for REIT stocks. In particular, he said cash flows and earnings are expected to begin to grow in earnest.

While valuations have come a long way, Steers said it is important to remember that is coming off historic lows.

"Whether you measure valuations on a price to net asset value or a multiple of cash flow growth, valuations are in the fair range," Steers said. "We also think that at this point in the cycle valuations are actually attractive because we are about to see an uplift in the earnings and cash flow numbers."

Volatility was a major concern across all asset classes during the financial crisis. U.S. REITs, Steers said, have come a long way back to historic trading patterns.

"Correlations with fixed income are close to zero, with equities around 0.5. The volatility numbers have come way down right back to that zone somewhere between fixed income and broad equities," Steers said.

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REIT Valuations Fair Given Market Expectations

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