REIT Prices Justified, According to Analyst

Geoffrey Shaver, analyst with Duff & Phelps Investment Management, joined REIT.com for a video interview in Chicago at REITWeek 2013: NAREIT’s Investor Forum.

Shaver shared his opinion regarding the most likely trends in the REIT industry for the remainder of the year.

“I think there are three trends that will continue for the rest of the year,” he said. “One, you’re going to continue to see REITs raise capital. The equity markets are open, it’s still a good time to raise debt and we’ve been seeing some historic low coupons on [preferred stocks] be issued. So, I think you’re going to see some capital being raised. I think we’re going to continue to see market rents trend up, and lastly some higher rents are going to lead to more development in many of the sectors.”

Fundamental indicators show that property values in the commercial real estate market have nearly reached the market peak levels of 2007. Shaver shared his thoughts on whether or not the upturn will have an impact on the REIT market.

“I think it does. Some of that is going to depend on revenue and rent growth,” he said. “In some cases—many of the apartments in different markets and Class-A malls—we’ve already seen rents that have surpassed the peak level rents. If we’re going to have these higher rents, and maybe the other sectors are going to catch up soon, some of these higher prices on REITs may be justified.”

Shaver also shared his thoughts on whether REIT prices are over-inflated. He noted that the market dipped in the late spring.

“We saw a pullback,” he said. “They’re down a little bit in June, so we basically had a correction over the past several weeks. They’re obviously cheaper than they were a few weeks ago, but again, with those rising rent levels in some cases now past peak levels, I think you can justify the higher prices.”