Joel Beam, portfolio manager at Forward Management, joined REIT.com for a video interview during REITWeek 2014: NAREIT’s Investor Forum, held in New York.
Beam has primary responsibility for day-to-day management of the Forward Select Income fund, which focuses on REIT preferred stocks. Beam said the strong income-oriented return makes the preferred market attractive for investors.
“You get more safety and more income as you go up the capital stack,” he said.
Beam noted that, in general, focusing on preferred stock has been a “really good value proposition,” offering mid-single-digit rates of return. “Yields are in the high sixes and low sevens, in some cases. If we’re able to maintain pricing, that’s probably the type of return we’re looking at,” Beam said.
In looking at the prospects for various REIT sectors, Beam said that the slow economic recovery has caused the fund to gravitate toward shorter lease-duration sectors. “So, that puts us in apartments and hotels more prominently,” he said.
At the same time, the fund is also “being a little more contrarian in its allocation toward office companies, particularly suburban office companies. It’s a really tough business, but right now it’s priced for the toughness,” Beam said. “If you really are optimistic, as we are, about things getting better, albeit slowly, we think suburban office is worth considering. We try to be a little bit unpredictable and risk-embracing in that sense.”
Beam also addressed the issue of where REIT valuations currently stand.
“Our view is that REIT equities are pretty fairly valued both on the common and the preferred side for our current environment,” Beam said. “I think REITs provide the opportunity for a high single-digit return. We’re just worried about the landscape shifting and if there’s one thing that keeps us up at night, that’s what it is.”