Bold 2024 REIT Predictions
Chilton Capital Management's 2024 REIT Predictions
Chilton Capital Management, a Texas-based investment advisor who runs an institutional REIT strategy, has released their 2024 REIT Outlook. Among their insights on 2023 was the significant dispersion in REIT sub-sector performance.
"Within the REIT sector, there was significant dispersion among the top and bottom REIT subsectors, as shown in Figure 2. Specialty (+38.3%), Regional Malls (+31.3%), and Data Centers (+30.0%) led the way, while Diversified (-3.8%), Cell Towers (-1.1%), and Triple Net (-0.7%) lagged, further demonstrating the continued importance of active management."
Chilton also made several self-described bold predictions for 2024:
Public REITs outperform S&P 500, Barclays Aggregate Bond Index, and private real estate (as represented by the NFI-ODCE)
Public REITs become ‘lenders of last resort’ to embattled private real estate owners with upcoming debt maturities
Positive fund flows into both active and passive REIT funds
The median REIT mutual fund outperforms the RMZ
Three or more REIT IPOs
One or more private real estate vehicles sells an asset or portfolio to another vehicle with the same sponsor
Public REITs are net acquirers for the year, with some increasing in size by 20% or more
Merger activity accelerates in 2024, potentially surpassing the high-water mark set in 2021
While Chilton's predictions are ambitious, we agree that the macro set-up is positive for REITs. A more normalized rate environment along with a contraction of private market capital could find publics an attractive home for real estate assets. A major advantage of listed REITs is their access to capital markets and comparatively lower leverage. Per Chilton,
"The recent increase in REIT equity prices could play out a scenario that we have been predicting for years; one in which public REITs are able to use their cost of capital advantage to increase market share through accretive acquisitions. We believe the ‘higher for longer’ interest rate scenario, while a slight headwind for earnings growth, could actually be a tailwind due to the external growth potential."
Financing Window
REITs Take Advantage of Lower Rates
A handful of REITs have taken advantage of the bond rally to come to market with bond issuances. Most of these issues have all priced around 100 basis points wide of the US 10-Year Treasury Bond, with the exception of West Coast office REIT Kilroy which priced at a 6.25% yield for notes maturing in 2036.
Quote Book
PHOTO: EQUINIX, Wall Street Journal
Data Center REIT Equinix Sells $300m of Swiss Bonds 🚠
"I’m going to look for what we call low-rate environments,"
Keith Taylor, CFO of Equinix (WSJ)
Renters Catch A Break 🏃♂️
“Renters suddenly have far more options than they’ve had in recent years, and that’s putting downward pressure on rent growth,”
- Jay Parsons, Chief Economist at RealPage (GlobeSt)
Bidders Return 📥
"While the current higher-rate environment has created a cooling effect on real estate's attractiveness in the short-term, strategic allocation targets into real estate are expected to remain stable and, in some cases, trend higher, especially in the long run,”
Richard Bloxam, JLL CEO of Capital Markets (Bisnow)
