REIT Valuation Levels Attracting Investor Attention

LaSalle Investment Management Securities Global CEO Lisa Kaufman said REITs are attracting investor attention on the basis that they currently offer “very good value” relative to the private market, as well as on a historic basis relative to equities and bonds.

Speaking July 6 on the Nareit REIT Report podcast, Kaufman said REITs in the United States and globally have “dramatically repriced,” and are materially underperforming broader equities and private real estate, “so we do see very good value today.”

LaSalle has lowered its REIT net asset value (NAV) estimates about 15%, and even with that reduction “we see some big discounts on offer,” Kaufman said. This is not lost on investors, she said, particularly the more opportunistic ones who are “adding money to the sector or even launching new programs to take advantage of what they see, and what we would agree, is a really good entry point.”

Some of Kaufman’s other observations include:

  • Trading volumes in LaSalle’s portfolio are up 90% year-over-year. “The public market is a blunt instrument. It’s moving on headlines and that’s been creating some nice alpha opportunities for us.”
  • LaSalle is forecasting a sharp decline in GDP in the second quarter followed by a recovery that restores GDP to year-end 2019 levels by year-end 2021. “The range of outcomes within the next year feels exceptionally wide, but we do think we’re on a path to recovery and we just expect the bumpy ride to continue.”
  • Residential real estate is an “interesting spot. There are some clear threats in the near term but rent collections have been strong and we think the defensive characteristics are probably being underappreciated.”
  • M&A due to distress is unlikely as financial conditions are “very supportive” of asset values today. “Debt capital markets are wide open, even for the most challenged sectors.”
  • In today’s challenging market environment, active managers “are much more likely to avoid the torpedoes that are out there and protect value for investors.”
  • Investors are showing a renewed interest in specialty REIT sectors