REITs Back on the Offensive
12/20/2012 | by Allen Kenney

Eric Rothman, portfolio manager with Urdang Securities, joined REIT.com for a video interview at REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.
Rothman oversees Urdang Securities' investments in publicly traded real estate in the Americas.

Rothman commented on his view of the major story in the REIT market in 2012. He said REITs have come off their defensive stance.

"I would say that REITs are solidly back on offense. All of the restructuring that they needed to do with their balance sheets is in the distant past. They've got the tailwinds of rising fundamentals, gaining back occupancy. We're starting to see selective rent growth across sectors. Rent inducements and concessions are all starting to fall away," he said. "We're at the point where we're really starting to see some above-trend growth. I think that will continue for the next 18 to 24 months."

Rothman also noted that smaller REITs have outperformed this year.

"That is an indication of the REIT market's continued healthy recovery to normal," he said. "As capital starts to flow out of the primary cities and core assets, it's finding a home in the smaller and more periphery assets. That generally has benefited the smaller-cap REITs. As capital continues to migrate out, it's a great indication that investors are being much more selective and rewarding those small and midcap REITs for their enhanced growth profiles."

Rothman discussed REITs' plans for the new capital raised in the past 12 months. In addition to buying new properties, he speculated that REITs will take the opportunity to buy out joint-venture partners.

"Those are some of the lowest-risk acquisitions that they can do, so I think that's a wonderful use of their capital," Rothman said. "They will also be pressing redevelopment, and I also think that they will be doing in certain sectors selective new development. Lastly, I think REITs fully appreciate their role as an income vehicle. As a result, I think that you are going to start to see an even greater increase in dividends."