Matt Wokasch, vice president for advisory and consulting with Green Street Advisors, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.
Wokasch offered his opinion on the most influential trends affecting the REIT market in 2014. He noted that management teams of C corporations have been trying to monetize the value of their real estate holdings.
Wokasch said a lower cost of capital is driving these decisions. REITs have traded at “meaningfully higher” multiples than C corporations in the S&P 500 “for the past several years,” he noted.
“Management teams have been inspired by this valuation disparity to review their real estate holdings to ensure that they’re being adequately appreciated by the public markets,” Wokasch said. “You can ignore a valuation disparity for a while, but the longer that spread exists, and the wider that spread becomes, the more pressure there is for management teams to capture that value. I believe 2014 was a tipping point for many decision makers.”
Wokasch also discussed some of the approaches that companies have taken to monetize their portfolios. He said some are converting to REITs by taking companies that have operations grounded in real estate and structuring them to qualify within the REIT rules.
“Nearly every company that has converted under this method has outperformed the REIT benchmark,” he said.
However, Wokasch did cast doubt on the possibility of a large wave of companies attempting to convert to REITs.
“Even though the performance has been particularly good, it is difficult to structure an operating company within the REIT rules,” he said. “As a result, I suspect most of the companies that could make this announcement have already done so.”