REITs Consistent, Sticking to Their 2011 Plans

To their credit, REITs have shown consistency in following their business plans in 2011, according to Jonathan Morris, managing director with Jones Lang LaSalle.

In a video interview with at REITWorld 2011: NAREIT's Annual Convention in Dallas at the Hilton Anatole hotel, Morris pointed out that REITs are using the current interest rate environment to their benefit.

"They've been acquiring assets when it made sense, they've been acquiring debt when it made sense, and the vast majority of them have taken advantage of this tremendously low interest rate environment," said Morris, referring to REIT's capital allocations throughout the year.

Looking ahead, Morris speculated that interest rates will remain low. As such, he said he doesn't see much changing in how REITs operate. "I think that REITs will continue to look at debt as being accretive by virtue of the fact that they can refinance at lower interest rates, unsecured or secured," he said.

Morris also discussed the muted level of initial public offerings (IPOs) in 2011 and IPO prospects for next year. He explained that whereas retail investors used to have about the same amount of influence on whether a company went public as institutional investors, the institutions have the biggest say now. Institutions take a "scientific" approach to investing in IPOs, according to Morris.

"If you meet those metrics, you can probably go public if you have a good portfolio," Morris said. "If you can't, it's going to be tough."

One of the major stories in the REIT market in 2011 was the merger of public companies, such as the union of industrial companies Prologis (NYSE: PLD) and AMB Property Corp. Morris said the health care sector offered the greatest possibility for mergers in 2012. He noted that financing was easier to come by for health care transactions.

"The health care industry makes sense, because those are long-term, net-leased assets," Morris said.

On the other hand, the specialization of portfolios in the office sector makes mergers in that sector more unlikely, according to Morris. Likewise, mergers and acquisitions among apartment REITs will require very specific conditions, he said.