REITs Fairly Valued

REITs are fully valued under current market conditions, according to Rod Hinze, KeyPoint Capital Management's founder and portfolio manager.

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, Hinze provided an analysis of the current state of the REIT market. He noted that implied cap rate on REITs stands at approximately 6 percent, whereas the average historical implied cap rate is roughly 8 percent. Hinze attributed the disparity to "artificially low" Treasury 10-year yields.

"I think that's a function of people looking for dividend yield in their portfolios, and I think REITs are a good place to find that yield," Hinze said.

Hinze also discussed some of the sectors he currently favors. For example, he singled out data center REITs as an attractive investment in the current market.

"Data centers are not getting credit for the growth that's out there in the marketplace," he said. "They trade at the same multiples as suburban office REITs, yet the demand for that space is three to four times greater than suburban office REITs."

Additionally, in light of the trend towards universities outsourcing the on-campus housing, Hinze said he is high on student housing REITs. Hinze also said there may be value in student housing REITs, which have been affected by the potential for government spending cuts.

Hinze picked out two sectors where he is proceeding with caution. First, he indicated that suburban office REITs are trading at higher multiples than growth projections would suggest. Second, he said he is concerned about retail REITs that have exposure to big box tenants.