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Health Care, Triple-Net Among Low-Volatility Sectors

07/31/2012 | By Allen Kenney

Investors seeking low-volatility REIT stocks in the current market environment can find them in the triple-net lease and health care sectors, among others, according to Nem Marjanovic, vice president with Cornerstone Real Estate Advisers LLC.

Marjanovic offered his thought on navigating the REIT investment market in an interview with REIT.com in New York at REITWeek 2012: NAREIT's Investor Forum. He encouraged investors searching for stability to look at the sectors with the longest lease durations.

"The rule of thumb: The longer the leases, the more stable the cash flows," he said.

Additionally, Marjanovic said larger-cap REITs tend to produce more stable returns.

"Larger-cap REITs with more liquidity naturally exhibit less volatility than their smaller-cap peers," he said."

In terms of specific companies, he said companies with high-quality property portfolios and low leverage rates generally offer stability. "These REITs usually tend to trade at a significant premium to their peer group," he noted.

For Marjanovic, the big story in the REIT market lately has been the growing number of companies attempting to convert to REITs. He pointed out that companies such as American Tower Corp. (NYSE: AMT) that have made the conversion have seen their access to capital increase dramatically.

Through the end of the year, Marjanovic singled out two storylines that could have major effects on REITs. First, he said the current upheaval in the eurozone could affect REITs' performance. Second, he said the national elections in the United States in February will influence how REITs perform: "Will the slowing U.S. economy dampen [President Barack] Obama's re-election prospects?"

Marjanovic said he expects to see an extension of the program that lengthens the maturities of debt on the Federal Reserve's balance sheet. Furthermore, he said he's anticipating another round of quantitative easing.

"These initiatives will try to stimulate the economy ahead of voters going to the polls in November," Marjanovic said.

Based in Hartford, Conn., Cornerstone Real Estate Advisers provides real estate investment services through open- and closed-end private funds, separate accounts, joint ventures, co-investment programs and mutual funds. The firm currently has more than $33 billion in assets under management.