NAREIT Mid-Year Report | Listed Real Estate Well-Positioned

The National Associate of Real Estate Investment Trusts, NAREIT, recently released their mid-year report [1].  Mixed property fundamentals and continued divergence in public and private real estate valuations have been the story so far.  REITs have climbed a “wall of worries” (and debt maturities) that have frozen much of the private market. Public real estate has outperformed the private market by nearly 33% in the last six quarters, while capitalization rates have remained above their private comparables.

Better Debt Management

REITs maintain low leverage and reduced financing risks with staggering debt maturities. The cap rate spread between private to public is favorable for public REITs with potential undervaluation, making them attractive to investors for two big reasons.

Public REITs exhibit lower leverage ratios compared to their private counterparts helping them manage debt more effectively in a high-interest environment. Staggered debt maturities mitigate refinancing risks and provide greater flexibility for acquisitions.

 Attractive Relative Valuations

Trading at a higher cap rate than private real estate suggests higher investment yields and potential undervaluation in the market. This cap rate spread reflects market perceptions of risk and return, making public REITs an attractive option for investors seeking better income returns and the potential for capital appreciation. Put simply, REITs are offering more for less in the real estate sector. Investors are getting higher occupancy at better valuations.

Stronger debt management practices and favorable cap rates spread position public REITs in the position to showcase their ability to deliver stable returns and maintain their potential for growth.

[1]  Mid-Year Report: REITs Offer an Opportunity Amid Choppy Waters | Nareit