REIT Analyst Sees Interest Rates, Privatizations Remaining on Radar

David Toti, managing director and senior equity research analyst in the real estate group of BB&T Capital Markets, joined REIT.com for a video interview at REITWorld 2015: NAREIT’s Annual Convention for All Things REIT at the Wynn Las Vegas.

Toti was asked whether interest rates will continue to be a key topic of conversation for REITs in 2016.

“Absolutely. Interest rates will always be part of the conversation of an asset that is levered, particularly after a very long period of ultra-low rates because of global liquidity forces,” Toti responded.

While BB&T’s own research shows that gross domestic product growth has a more significant impact on REITs than interest rate movements, Toti said monetary policy will continue to be a part of the discussion on REIT valuations, capitalization rates and returns.

Following a busy period for REIT privatizations in 2015, Toti said he expects the trend to continue into 2016 so long as the gap between public and private market prices remains.

“Our view is that the public markets are mispriced today and that the REITs are trading with general discounts. Across the board, we expect privatizations to continue,” Toti said. Mergers and acquisitions activity will also be a feature of the market, Toti said.

Toti stressed, however, that “the days of easy acquisitions are over.” Toti said he expects overall acquisition activity to diminish, except for sectors where there is operating leverage. These sectors include self-storage and selective apartment and health care assets, Toti said.

“In general, because of where asset pricing is today in the private market, acquisition activity should slow in the coming year,” Toti noted.