Steve Brown, senior portfolio manager and senior vice president with American Century Investments, joined REIT.com for a video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.
Brown was asked how a rising interest rate environment will affect REITs.
“That’s a timely question because we’ve seen rates rise somewhat this summer or talk of tapering, and the REITs sold off pretty dramatically,” he said. “I think short term, a rising rate or the advent of rising rates is viewed as a negative by investors, so there could be some pressure on REIT share prices. I think longer term, if the reason rates are rising is because the economy is starting to expand, employment is picking up and incomes are rising, then that’s a good environment for REITs. They’ll be able to show growing rents and growing dividends. I think if investors stick with it, they’ll be rewarded with some attractive returns if the rising rate environment is accompanied with an expanding economy.”
Brown shared his views on whether this is a stock picker’s market for REITs.
“I think it’s a combination,” he said. “Some property sectors are doing well, a lot better than others in a rising rate environment, such as hotels, industrial or regional malls, because of the expectation of an improvement in the economy. I would say, though, that there are still a lot unique stories in the real estate universe that would lend themselves to a stock picker’s environment.”
Brown discussed any sectors that investors might be underestimating.
“I think the hotel REITs base is still underestimated and perhaps under-owned in the investment space,” he said. “The lack of financing for hotel construction is allowing landlords or REITs that own hotels to continue to see improvements in RevPAR (revenue per available room). We’re still below peak levels of room rates and RevPAR from the 2006-2007 period, so there’s still upside there with very little new supply on the horizon.”