PGIM Portfolio Manager Sees Disconnect in REIT Stock Prices

Rick Romano, managing director and portfolio manager at PGIM Real Estate, joined REIT.com for a video interview at REITWeek 2016: NAREIT’s Investor Forum at the Waldorf Astoria New York.

Romano commented on the surprise developments he has seen in the REIT market so far this year. One of the biggest surprises, according to Romano, has been the disconnect between net asset value (NAV) and price performance for core real estate.

He pointed out that slowing of growth in revenue or net operating income (NOI) is producing significant results in REIT stock prices. “A 50 basis point decrease in NOI growth shouldn’t translate into a 15 percent stock price correction,” Romano said. He added that markets will likely get “more rational” by the end of the year.

Turning to specific property segments, Romano said he sees the best NAV values in central business district office properties, class-A regional malls and multifamily assets. PGIM also favors the manufactured housing and student housing segments. “The internal growth of student housing will start to accelerate and be pretty robust this year,” Romano said.

For the remainder of the year, Romano said the focus is likely to settle on the duration of the current real estate cycle.

“The news of the end of the real estate cycle might be a bit exaggerated right now. We think there is some running room in the cycle from a supply-demand perspective,” Romano said.