Four Quick Questions...
...with Holly Daly
by Allen Kenney
1What are some ways REITs
can conserve capital in the
current environment?
Reducing dividends and halting
future development have been
two of the most commonly used
capital conservation methods, but
other ways to conserve capital
include reducing management
compensation levels implementing “green” initiatives, such as
water usage, lighting and temperature sensors, and lighting recon-figurations; and leasing services
where it makes sense, particularly
in the short term. REITs will
need to identify and curtail expensive technical improvements
until capital is more readily available. Employ absolute criticism
of every item in the books. You
can’t afford not to.
2Do you think President
Obama’s plans to boost
infrastructure development
could have a positive impact
on the REIT industry?
A federal boost in infrastructure
development could create a
market for new REITs focused
Daly is an account
manager at SNL
Financial.
on infrastructure. I think a positive impact would result from
greater spending on new or enhanced infrastructure development projects that are associated
with today’s growth patterns,
and less on shoring up aging
infrastructure.
It could also create an opening for REITs to diversify and
invest in infrastructure projects.
An example that comes to mind
is the J-REIT Industrial & Infrastructure Fund Investment
Corp. (TSE: 3249. T), which
invests in industrial properties. It
also invests in properties traditionally considered the domain of
the public sector—water supply,
roads, airports—as well as energy,
telecom and other industries.
Also, several infrastructure funds
and indexes have been launched
in the U.S., and Australia has
infrastructure funds that invest
in public infrastructure assets.
While, technically, they are not
REITs, the interest in these investment vehicles could spur an
interest in infrastructure REITs
in the United States. With public
funding stretched to an ever-thinning line, I could see new
opportunities for private-sector
partnership via REITs with the
proposed government infrastructure development plan.
Also, the emphasis on rebuilding infrastructure, such as
improved transportation and
sewer systems, could spur the
real estate community to reinvest
more in their current property
portfolios before thinking about
new development pipelines.
Building and construction firms
are poised to commence bidding
on future infrastructure proposals. Infrastructure builders could
become potent new investors and
partners in the REIT market.
3Are there REIT sectors
you consider to be well-suited to respond to the
economic downturn?
Health care and medical REITs
come to mind. Although health
care REITs have had their share of
losses, the looming baby boomer
population entering the health
care market should slow the
decline. Additionally, apartment
REITs are more palatable because
the demand for rental apartments
is increasing as a result of delayed
home buying or the unfortunate
foreclosure experience.
4Given the industry’s performance in 2008, do you still
consider REITs to be low correlation investment vehicles?
2008 was different than the
norm over the past two decades.
Typically, REITs have a low
correlation with the broader
markets for equities, bonds,
etc. But in the last quarter
of 2008, REIT performance
moved down in concert with
the broader market because the
credit squeeze took no prisoners. Market behavior throughout 2008 was an anomaly for all
investment vehicles. F
