The changing nature of the REIT industry, notably the rise of companies that are at the forefront of the new economy, was one of several themes discussed during the State of the Capital Markets general session at REITwise 2021: Nareit’s Law, Accounting & Finance Conference.
Scott Schaevitz, co-head of Americas real estate investment banking at Barclays, moderated the panel. He noted that the “new universe of REITs” has forced traditional real estate bankers to gather knowledge from specialists in other industry groups across their firms.
“We’re definitely seeing a change in the way we need to do business to make sure that we are providing what we need…to our clients,” Schaevitz said.
Nora Creedon, a managing director at Goldman Sachs & Co., described a “complete transformation of the REIT world,” with 50-60% of investable companies representing “more nichier areas” that tend to be growth oriented.
Creedon added that the “FANG” dynamic of the REIT market—a reference to the high-growth tech companies—has only accelerated over the past year.
Gina Szymanski, a managing director at AEW and a portfolio manager in the firm’s real estate securities group, added that the growth of niche sectors has resulted in a different view on how to value companies.
The panel also looked at the change in the REIT investor base.
Jay Johnson, EVP & CFO at Lamar Advertising Co. (Nasdaq: LAMR), noted that the company is beginning to see investors rethink their definition of real estate. “Investors, because of how well the alternative asset classes have done, are almost being forced to look at these other alternatives,” he said.
Ben Jenkins, chief investment officer at Colony Capital Inc. (NYSE: CLNY), noted that within both real estate and infrastructure, the company has been an outperformer. “Digital infrastructure, writ large, has performed extremely well relative to almost any asset class. That has certainly attracted attention and capital,” he said.
Other topics covered by the panel included:
- M&A:
Johnson noted that Lamar “turned on the acquisition engine” in late 2020, and the company is “open for business.”
Creedon pointed out that “people want to see well-capitalized companies dip their toe into the acquisition market.”
Schaevitz added that companies are taking a much more disciplined approach to acquisitions: “The pie-eating contest is over.”
- ESG:
Johnson said Lamar is beginning to explore how it communicates its ESG strategy. He added that the U.S. continues to lag Europe with regard to ESG matters.
Jenkins noted that Colony Capital is being more intentional about how it records and reports its ESG activities.
Creedon observed that any companies taking a “check the box” approach to ESG “will miss out big time.”
Szymanski added that measurability of ESG remains a challenge. “The S in ESG is obviously very tricky.”
- Balance Sheets:
Szymanski said companies are much more disciplined today than during the financial crisis. Creedon, meanwhile, said she would be more open to companies taking their leverage to a higher level if it enabled them to find good opportunities to grow.