Real Estate Acquisitions Creating Value

Many REITs were able to acquire assets in desirable markets in 2011, according to Haendel St. Juste, equity research analyst with KBW.

In a video interview with REIT.com at REITWorld 2011: NAREIT's Annual Convention For All Things REIT in Dallas at the Hilton Anatole hotel, St. Juste pointed out that the acquisition pace is playing out as expected.

He said that banks were putting more assets on the market as over levered borrowers were "facing the music."

"The REITs were able to take advantage of their cost and access to capital to really be able to pursue and acquire some well located assets at, more often than not, very reasonable prices," St. Juste said.

Today, the cap rates are in the high fours and low fives for a high quality asset in one of the core coastal markets, according to St. Juste. He added that there's a good chance for REITs to create value with those acquisitions, especially with good NOI growth over the next couple of years.

In terms of how 2011 has fared, St. Juste said most REITs took a conservative approach amid the uncertain economic outlook.

"We weren't seeing much job growth and I think most tended to default to a more conservative baseline projection for their year," St. Juste said.

However, he added that there were a few surprises in the apartment sector because landlords were able to increase rents, without material job growth.

"Despite what you read in the news, apartment fundamentals are strong and you have a number of confluence factors driving that," he said.

In addition to a decline in home ownership rates, St. Juste said that the apartment sector is benefiting from a reduction in supply because of the construction freeze during the downturn.

He said that factor, coupled with a modest job growth among the rental age population of 25-34 year olds, places the apartment sector in a good space.

"These companies are professionally managed, have strong balance sheets and there is prospect for dividend growth across many of the sectors, especially in apartments," St. Juste said.