11/30/2012 | By Matthew Bechard
Ralph Block, author of "Investing in REITs" and longtime industry veteran, joined REIT.com for a video interview at REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.
Block discussed perceptions of the REIT industry among the general investing public.
"I think it's a lot better today than it was even five years ago. I think most investors understand the kinds of organizations that REITs are, that they own diversified kinds of properties generally within a property type and they know quite a bit about their dividend policy and all that," Block said. "I think the one area where there's still probably a lot of confusion relates to operating metrics and valuation metrics."
Block singled out REITs' level of risk as investors' biggest ongoing misconception.
"I think probably the biggest misconception relates to risk. We were probably on the way to dispelling that up until the great recession, and then we had the problem where REITs had to scramble to raise a lot of equity capital and pay off debt. As a result, the stocks became very volatile," he said. "In the last 12 months, I think that concern is dissipating. The stocks have been less volatile, and certainly they've built up their capital structures. I think they're going to be increasingly favored over the next 12 months because of the stability of their cash flows, and there would be less perception of risk."
Block was asked to identify the biggest surprise in the REIT market during the last 12 months.
"I was most surprised by how the retail sector has held up. I would expand that to include sectors that deal directly with consumers—self-storage, for example. Consumer spending has been difficult and consumer sales have been over-levered," Block said. "Retail sales have generally done better than I thought they would, and we also have a situation where retailers really want to open more stores. I think that's benefitting a lot of the REITs that have properties in good locations and that are highly productive."