Rick Romano, managing director and portfolio manager with Prudential Real Estate Investors, joined REIT.com for a video interview at REITWorld 2013: NAREIT’s Annual Convention for All Things REIT at the San Francisco Marriott Marquis.
Romano shared his opinion regarding which real estate sectors bear watching in 2014.
“I think they all bear watching in one way shape or form,” he said. “What we’re focusing on is cash flow growth right now. If we look back and see what’s going on with interest rates, we want to be positioned in sectors that we feel like can give us good growth. We try to look at growth in relation to value. When we look at that, we like the regional malls and apartments going into 2014. We think that they underperformed a little bit in 2013, and are poised now to show cash flow growth in 2014.”
Romano discussed the current capital environment, and whether or not REITs should be looking to deploy this fresh capital for growth, or using it more to stabilize their balance sheet.
“I think in certain cases, REITs that have their balance sheets straightened out, that did a good job in this open capital markets environment of repairing their balance sheet, turning out their debt - those companies should be focused on growth opportunities,” he said. “It’s hard, because things are very competitive, where do they find growth. We’re seeing that some companies are finding it in redevelopment.”
Romano also talked about what he sees as the biggest challenge facing REIT investors in 2014.
“If you look at quantitative easing, there’s really only one direction interest rates are going, and that’s going to be up over the next 12 months,” he said. “So, that will provide challenges for REITs, because they’re an income vehicle. So, REITs that can grow their dividends, grow their cash flows, are going to be better positioned in that challenging environment as we go into 2014.”