Stifel Nicolaus Analyst Pleasantly Surprised by Performance of REITs in 2014

John Guinee, REIT equity analyst with Stifel Nicolaus & Co., joined REIT.com for a video interview during REITWeek 2014: NAREIT’s Investor Forum, held in New York.

Guinee talked about the big stories in the first half of the year that he is following.

“The big story clearly has been the risk-off trade and the decline in interest rate and interest-rate perception,” he said. “Six months ago, the entire world expected us to be at three and a half of the 10-year Treasury by now. Six months later, the entire world thinks that two and a half is the right number, which is a 50-point basis drop in interest rates, but a hundred-basis point drop in perception. Combined with that, you clearly have headed to a risk-off mentality, defensive trades, and the end result is that REITs are up 14 [percent] to 15 percent year to date, which has surprised, pleasantly, virtually everyone at this conference.”

Guinee discussed the particular sectors that have surprised him.

“With this kind of decline in interest rates, we would have expected the health care and triple net lease [sectors] to do a little better than other sectors. They’ve done a little bit better, but they could have done a lot better,” he said. “Despite a very steep decline in the cost of capital for the triple nets and the health care names, their outperformance has been a little bit, but not as much as it could have been.”

Guinee shared his opinion with regard to what will be the big story in the REIT market in the next six months.

“Assuming interest rates stay the same and people focus more on fundamentals, I think probably the big story will be development,” he said. “We expect a lot of development to kick in during the second half of 2014 for industrial product. I think what happens is the investor mentality is very risk-averse right now, so when you see a lot of industrial development kick in, I think you’ll see people very, very nervous about that particular sector.”