Nareit's Reit Report Podcast

In the latest edition of the Nareit REIT Report podcast, Nareit senior economist Calvin Schnure highlighted the latest developments surrounding the impact of the coronavirus pandemic on the economy and REITs.Schnure emphasized that this is first and foremost a public health crisis, but also one which is impacting the economic and financial livelihood of tens of thousands of people.The situation is changing quite rapidly, Schnure said. He noted that his analysis as of March 12 is different from what it was just a few days ago.Schnure noted that a pandemic of the current scale hasn’t been seen before in modern history.“The experience in several other countries …is that it is possible to slow the spread of this virus and that will limit the effect on the economy, commercial real estate, and REITs,” Schnure said.

The latest edition of the Nareit REIT Report podcast looks at developments surrounding opportunity zone investing with Dan King, senior manager, national tax services, at CohnReznick LLP.Opportunity zones were created by the Tax Cut & Jobs Act of 2017, and final regulations were released by the Treasury Department and the IRS at the end of December 2019.“The final regulations have answered a lot of the uncertainties in the market,” King observed, and include “a lot of taxpayer-friendly aspects.”While there are still some aspects that need to be clarified, overall the final regulation package has been “very well received by the industry,” which has resulted in CohnReznick “getting a lot more questions coming in, and a lot more people interested in doing deals,” King said.In terms of the types of investors being drawn to opportunity zones, King pointed to interest from family offices, real estate developers, and closely-held businesses.

Nareit’s vice president for research, Nicole Funari, joined the latest edition of the REIT Report podcast to discuss some of the findings from Nareit’s latest REITs Across America data, including the contribution that REITs make to the U.S. economy, their geographic footprint, and their shareholder base.Funari noted that the number of REIT properties has increased every year since Nareit began counting in 2016. The latest data shows over 520,000 REIT properties, comprised of 207,000 actual buildings, 219,000 signs or billboards, and 95,000 cellphone towers.Traditional REITs still have the highest level of gross asset value, according to Funari, but some of the newer sectors like data centers have shown the most growth over the past three years. Lodging has also shown large growth in gross asset value, as has retail, which has posted the second highest growth rate over the past three years. While the value of traditional mall and shopping center assets are down, there has been an uptick in the gross asset valu

While the growth in the supply of short-term rental (STR) units has tempered in recent years, the STR market is an important factor in valuation calculations for the traditional lodging sector, according to Jamie Lane, senior managing economist of CBRE Americas Hotels Research.Speaking on the Nareit REIT Report podcast, Lane noted that with a bigger inventory of STR units now in place, year-over-year percentage growth rates for STR supply in the U.S. will continue to ease. STR unit supply grew by 26% in 2019, down from 39% in 2018, and down from the seven years of exponential growth prior to that. The rate of supply growth is expected to slow in 2020 to 19%.Despite the slower growth rate, new units have still averaged over 100,000 per year since 2016, with 2020 marking the fifth consecutive year that this threshold has been met. As a result, the supply penetration rate of STR units to traditional hotel units reached almost 10.5% in 2019 and is expected to hit 12.2% in 2020, Lane said.In 2014, the vast majorit

The latest edition of the Nareit REIT Report podcast looked at real estate deal activity with Tim Bodner, U.S. real estate deals leader at PwC.Although the volume and value of commercial real estate deals in 2019 were lower relative to 2018—a particularly strong year—activity was higher than in 2017. Most of the decline in 2019 came from the lodging and retail real estate sectors. In retail real estate, transaction value was down 31%, while falling 15.5% in the lodging space. On the other hand, the value of logistics transactions rose 13% in 2019. Nearly all other real estate sectors logged a decline in transaction value in 2019, according to PwC.In 2019, nine REIT M&As took place, representing about $24 billion in value. About 70% of that total represented the logistics sector.Fundraising by public REITs from January through November 2019 hit $107.3 billion, or nearly twice the total for all of 2018 and 7% higher than the previous peak in 2017.

After underperforming in 2019, the lodging and resort REIT sector is on a similar track in the first few weeks of 2020, according to Evercore ISI managing director Rich Hightower.In the latest edition of the Nareit REIT Report podcast, Hightower said he expects no more than a 1-2% increase in room night demand in 2020. Supply, meanwhile, is increasing at a 2-2 ½% range, and more so in some of the urban markets.“It seems to be hard to argue for ADR (average daily rate) improvements in a declining occupancy scenario,” Hightower said. He noted that the industry didn’t see much pricing power at all in 2019, and that was at a time when occupancies were still growing. Consequently, RevPAR is likely to be flat to lower in 2020, according to Hightower.Meanwhile, Hightower noted that TRevPAR (total revenue per available room) became a mainstream statistic that companies started to report in 2019. It captures non-room revenue and is growing at a rate in excess of RevPAR, he said.

In the latest edition of the Nareit REIT Report podcast, Calvin Schnure, Nareit senior vice president for research and economic analysis, shared his thoughts on the economy, real estate, and REITs in 2020.In Nareit’s 2020 Economic Outlook, Schnure uses the term “uncharted waters” to describe the current environment. He explained that the phrase underlines the fact that the risks normally faced this far into a typical expansion or commercial real estate boom aren’t present at this time.“We know there are risks ahead, we just can’t look to the usual corners to see where they are going to be,” Schnure said. He added that because there is no clear idea of when the current expansion might end, the descriptor “late cycle” doesn’t really apply. A more accurate term for the state of the commercial real estate market is that of a “mature recovery,” he noted.

The latest edition of the Nareit REIT Report podcast looked at trends in the REIT health care real estate segment with Michael Gorman, a managing director and REIT analyst at BTIG.The key theme last year was the differentiation in the underlying performance of health care real estate portfolios, according to Gorman. That trend is likely to remain in place, at least in the first half of 2020, he noted.In 2020, “we don’t see a groundswell of improvement in any of the particular property types. Senior housing is still going to be pretty choppy at the national level,” Gorman said. However, the medical office building segment should return to external growth in a “more meaningful way” in 2020, he added.One key factor adding to uncertainty in the health care real estate sector this year is November’s general election, according to Gorman.

While retail real estate faced challenges in 2019, performance varied quite widely across the sector, a trend that is likely to continue into 2020, according to Mizuho Americas REITs analyst Haendel St. Juste.St. Juste was a recent guest on Nareit’s REIT Report podcast. He highlighted the disparity in performance between regional malls, which faced challenges, and shopping centers, that have had a “formidable run.”In terms of the regional malls, “there’s lots of uncertainty with key tenants heading into 2020,” he said, while also describing Simon Property Group (NYSE: SPG) as “the most investable company in that space.”For those investors looking for retail exposure, St. Juste highlights the triple net lease segment, which he feels offers “the best risk-adjusted returns.”

Jonathan Keehner and John Roe, partners at strategic communications and investor relations firm Joele Frank, were guests on the latest edition of the Nareit REIT Report podcast.Nareit has worked with Joele Frank to create a Communications Toolkit with a framework for developing an effective communications strategy for generalist investors. It was recently distributed to Nareit members.Keehner described what he sees as a “real disparity between the dedicated investor group and the generalist group.” To help alleviate that gap, he suggests REITs “hit the reset button” and really focus on communicating what makes their company unique.“It’s about introducing the story and making it compelling, it’s about leveraging the exciting aspects of a portfolio to draw in a new audience,” Keehner said. At the same time, he recommends that REITs take a fresh look at their IR exposure: “It’s [about] doubling down on the existing investor base and then thinking creatively about ways to engage with a new investor base.”

Frank Haggerty, Jr., portfolio manager for all dedicated global real estate securities managed by Duff & Phelps Investment Management, joined Nareit’s REIT Report podcast during REITworld 2019 in Los Angeles.Haggerty highlighted some of the geographic regions that are expected to perform well in 2020. In the United States, he said, Duff & Phelps is most positive on Southeastern markets. The region is seeing the technology job growth that is evident in other parts of the country, he noted, combined with a strong corporate relocation tailwind as companies seek lower-cost and more business-friendly environments.As for Europe, Dublin, Madrid, and Barcelona are all markets that are showing potential, he said.In terms of U.S. REIT fundamentals, Haggerty said Duff & Phelps is watching supply: “Clearly given where we’re at in the real estate economic cycle, supply is an issue in a number of property types,” he said. Growth in jobs and wages are also being closely watched, he added.Meanwhile, Haggerty said

John Guinee, managing director at Stifel, joined Nareit’s REIT Report podcast during REITworld 2019 in Los Angeles.Guinee noted that the overall REIT market has drifted from a “net asset value (NAV)-based investment bias to a real bias of cash flow growth, dividend growth, and value creation.” Across all property sectors there’s demand from investors for stocks that incorporate these three components, he said.Turning to the industrial sector, Guinee pointed to in-place rents that are 10%-20% below market value, while land costs are going up, and supply/demand is broadly in balance. At the same time, e-commerce is providing about 60 million square feet of additional demand. “With that backdrop, the industrial REITs are able to generate high FFO growth simply because they have such good fundamentals,” Guinee said.Multifamily is much the same, according to Guinee, with supply/demand largely in balance and topline revenue growth of 4%-5%. Office REITs, however, are finding it “very difficult” to grow FFO and the

Andrew Spodek, CEO of Postal Realty Trust, was a guest on the latest edition of the Nareit REIT Report podcast.Postal Realty Trust owns 366 post office properties across 43 states and was one of only a handful of REIT IPOs that occurred in 2019.Spodek noted that there are 32,000 postal facilities throughout the country, of which 23,000 are leased and pay about $1 billion in gross rent. Of those 23,000, 16,000 are owned individually, he said: “That’s how fragmented this market is.”As for the timing of the IPO, Spodek pointed to two key determining factors: a “generational shift” in the ownership of post office assets; and a decision by the post office to outsource its real estate services, “which is very different from what these owners are used to.”Providing owners with an ability to move their assets into institutional hands “was something we felt was very timely,” Spodek said.

In the latest edition of the Nareit REIT Report podcast, Beth Burnham Mace, chief economist and director of outreach at the National Investment Center for Seniors Housing & Care (NIC), looked at the latest trends and developments in the senior housing sector.Mace described today’s typical senior housing resident as 83 years old with higher acuity needs than in the past. “Because of the great recession, people delayed the timing of when they moved into senior housing, and that has held to be true even today.”Occupancy trends have been “relatively weak,” Mace said. In the third quarter, the senior housing occupancy rate was 88%, up from 87.7% in the second quarter—which was the lowest level in eight years. Net absorption of senior housing units in the third quarter was the highest number in a single quarter since NIC began recording data in 2006.Assisted living occupancy in the third quarter moved off its record low level seen over the prior three quarters to hit 85.4%. Independent living occupancy, meanwhi

In the latest edition of the Nareit REIT Report podcast, Jim Berry, U.S. Real Estate leader at Deloitte & Touche LLP, highlighted some of the trends that emerged in Deloitte’s recently released 2020 commercial real estate outlook.Deloitte based its findings on a survey of 750 real estate owners and operators in 10 major global markets. One of the key trends in the outlook was the importance of tenant experience, with 64% of respondents saying they would continue to increase their investment in tenant experience technology.“We noted that the clear movement on the expectations of the tenants, as well as the overall end-user, was really impacting the way real estate companies are…continuing to make decisions,” Berry said.

In the latest edition of Nareit’s REIT Report podcast, Gil Menna, co-chair of the REITs and real estate M&A practice at law firm Goodwin, discussed the climate surrounding mergers and acquisitions (M&A) and initial public offering (IPO) activity.M&A activity has been light in 2019 compared to previous years, in large part due to an “anemic” REIT market performance last year, Menna said.“Certain sectors in the REIT market have been off. Normally that would result in privatization transactions of public companies that are trading at discounts to net asset value (NAV), but we haven’t seen a significant amount of activity there as well because there has been an abundance of private opportunities available for capital that’s attracted to the real estate asset class,” Menna explained.

The latest edition of the Nareit REIT Report podcast looked at the increasingly important role that chief human resource officers (CHROs) are playing on executive boards. Bill Ferguson, CEO of Ferguson Partners Ltd., and Elizabeth Gaffney, global CHRO practice leader at Ferguson, discussed their new research on the topic.“Human capital issues are increasingly dominating boardroom discussions,” according to Ferguson. He noted that Ferguson research has identified 56 either active or retired CHROs on Fortune 500 boards. “We were surprised the number was as big as it was—75% of these had been appointed since 2015 and 30% since 2017,” he said.According to Gaffney, the human resources role has become much more important throughout all industries: “The role of HR has moved from one that has been viewed as tactical in nature to one that is strategic. CHROs are now reporting to the CEO in most companies and are certainly part of the C-suite.”

The latest edition of the Nareit REIT Report podcast featured an interview with Ed Fritsch, who stepped down as CEO of Highwoods Properties on Sept. 1 following a career of more than 30 years at the Raleigh, North Carolina-based office REIT.Fritsch joined Highwoods in 1982 at the age of 23 and was a partner in the predecessor firm before its IPO in June 1994. He served as COO from January 1998 to July 2004 and was vice president of operations and secretary from June 1994 to January 1998. He became the company’s president in December 2003 and CEO in July 2004. Fritsch also served as Nareit chair in 2016.Fritsch said that holding a variety of positions throughout his career at Highwoods enabled him to “leverage that information to the good of the company.”A year after Fritsch became CEO, Highwoods implemented a strategic plan that remains in place today.“I knew Highwoods was a good company, but I was keenly interested in how we could make it better. The team made a pledge that no person, no process, and no prop

The latest edition of the Nareit REIT Report podcast looked at industrial real estate trends with George Cutro and Chad Buch from JLL’s Chicago industrial research team. Cutro and Buch also co-host JLL’s Chicago Industrial-Real Time Podcast.Buch said JLL is “cautiously optimistic” for industrial real estate in 2019. Despite global uncertainty, “the fundamentals are really healthy,” driven by consumer consumption, e-commerce, and supply chain innovations.Cutro noted that e-commerce has changed the supply chain cycle, with the advent of smaller sized distribution centers replacing a traditional hub-and-spoke system. “We’re seeing a lot more demand in that smaller size, call it under 500,000 square feet, that’s really driving today’s numbers,” Cutro said.“The big deals all happened a couple of years ago in the coastal and core markets…now this is the second round of smaller and mid-sized deals happening in some of the secondary markets,” Buch said.

The latest edition of the Nareit REIT report podcast featured Melinda McLaughlin, vice president of research at Prologis, Inc. (NYSE: PLD), who discussed some of the highlights of Prologis’ latest Industrial Business Indicator (IBI) index report, a quarterly survey of customer sentiment.McLaughlin described industrial demand at mid-2019 as “healthy,” with the IBI index currently at a level of around 60. Customers are continuing to grow at a “sustainable pace” following 2018, which was the second highest level for net absorption of industrial space seen in this cycle.“The tailwinds to demand, which we've seen throughout this cycle, continue to play a large part in what we're seeing in terms of customer leasing activity,” McLaughlin said.