REIT CEOs Encouraged by Market Fundamentals

Speaking at a lunch panel on the first day of REITWeek 2015: NAREIT’s Investor Forum, executives from a diverse group of REITs expressed optimism regarding fundamentals in their particular market segments.

During the June 9 session moderated by David Neithercut, president and CEO of Equity Residential (NYSE: EQR) and NAREIT’s 2015 chair, the executives also pointed to favorable conditions in the capital markets.

Benjamin Moreland, president and CEO of cell tower REIT Crown Castle International Corp. (NYSE: CCI), noted that data traffic rose 60 percent in 2014, driven largely by video demand. He added that the company’s revenue stream is growing on an organic basis by about 5 percent per year.

Farmland Partners, Inc. (NYSE: FPI) President and CEO Paul Pittman said that despite a drop in key commodity prices in the last two years, there has not been a corresponding drop in farmland values. “This is still a very profitable time for most American farmers,” he said.

William Stein, CEO of data center REIT Digital Realty Trust Inc. (NYSE: DLR), noted that fundamentals are improving following a period of excess supply.

“Providers have become more rational,” he observed. “There’s a lot more discipline in our space.”

Billboard advertising REIT Lamar Advertising Co. (NASDAQ: LAMR) CEO Sean Reilly commented on new competition in the firm’s area of focus.

“We’ve more than held our own against social media,” Reilly remarked. “We feel good about where we are and where our customers are.”

As for capital market conditions, David Nunes, president and CEO of Rayonier, Inc. (NYSE: RYN), observed that timberland REITs enjoy ready access to capital, while the federal government’s agriculture-based lending programs offer even lower rates.

Moreland commented that Crown Castle has “had access to capital all along the way,” while Reilly added that his company’s current cost of capital is at its lowest level ever.

Meanwhile, Neithercut asked the REIT executives about progress toward gaining broader institutional investor acceptance for their non-traditional business models.

“After 18 months as a REIT, the reception is very good,” Stein said.

Reilly pointed out some of the hurdles that Lamar faces attracting investors. First, investors mistakenly perceive U.S. advertising spending as cyclical. Investors also have to adjust to the fact that Lamar’s contracts, averaging about five months, are shorter than what they are used to. Third, investors also have to adjust to idea that Lamar doesn’t own the land under many of its billboard structures.

For his part, Pittman said he hoped the reclassification of real estate as a separate sector within the Global Industry Classification Standard (GICS) will lead to better recognition of Farmland Partners’ asset class. During the next 12 months, Pittman said the main opportunity for the company lies in becoming “institutionally relevant.”