BMO Analyst Says Diminishing Interest Rate Concerns Boosted REITs in 2014
12/16/2014 | by Sarah Borchersen-Keto

Paul Adornato, managing director with BMO Capital Markets, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

According to Adornato, the big story for REITs during 2014 was their “tremendous performance” compared with the overall market. Although concerns about interest rate increases did impact REITs earlier in the year, REITs “sailed away” once investors determined that those increases were not imminent, he said.

“REITs are on track to have a really great year, both in absolute terms and relative to the broader market,” Adornato observed.

Looking to 2015, Adornato said one theme he will be following closely is REIT development activity.

“A couple of years ago, we mentioned that companies that were doing development were probably the leaders,” Adornato said.  “Now, later in the cycle, the opposite is the concern. Do we have too much development, and which companies might be exposed to overdevelopment?”

Meanwhile, Adornato pointed out that investors may be underestimating the class-A mall segment of the retail sector.

Although retail sales have been flat, and some categories have “pretty significant concerns,” Adornato said investors are underestimating the ability of the mall owners to adapt to the situation and create “dynamic changes within the mall.”

“Class-A malls are trading at prices that indicate that probably there’s an unwarranted discount,” Adornato added.