A brightening economic picture has market forecasters predicting another strong year for U.S. REITs in 2011.
With the outlook for operating fundamentals improving, the consensus among REIT analysts is that the industry will produce double-digit total returns in 2011, the third year in a row. REIT total returns averaged 28 percent in 2009 and 2010.
In his 2011 forecast, John Perry, analyst with Deutsche Bank Securities Inc., said fundamentals in all major sectors had either stabilized or turned positive. Consequently, REITs are beginning to boost their dividends, which Perry predicted would continue throughout the year. Perry also noted that lenders are growing more receptive to commercial real estate borrowers.
“Plus, acquisition activity, while still relatively light, has been picking up and with their access to the public debt and equity markets, REITs remain, in our view, very well positioned to win more than their fair share of deals,” said Perry, who pegged REITs’ total returns between 8 percent and 12 percent in 2011.
The real estate analysts at Raymond James offered an even more optimistic assessment of the REIT market, predicting total returns between 10 percent and 15 percent this year.
While the Raymond James analysts acknowledged that their forecast may appear “aggressive,” they pointed out that the course of the latest cycle in the market is tracking past bull markets. REITs averaged annual total returns of 21 percent from 1991 to 1997 and 2000 to 2006.
“Indeed, we’d adopt an even more bullish perspective for 2011 if we weren’t concerned that the turn in fundamentals would likely coincide with a directional shift in interest rates,” the group from Raymond James said in their 2011 forecast.
Jonathan Litt, managing principal with Land and Buildings Investment Management LLC, also gave a positive prediction for the commercial real estate industry in 2011. He said capital infusions from investors should continue to “rain” down on companies.
“The continued improvement in the economy is driving a pop in real estate fundamentals and institutional investors are allocating more capital to real estate,” Litt said in his 2011 forecast. “Lenders are becoming unshackled from doomsday underwriting and are feeling a new bravado as they increase their loan growth plans.”
Litt said he expected earnings growth of 10 percent and dividend yields of 4 percent, producing “mid-teen property total returns.” (credit reit.com)