The Federal Reserve's current interest rate policy should have unintended benefits for the REIT industry, according to Steve Brown, senior vice president and senior portfolio manager with American Century Investments.
The Fed's stated intention of keeping interest rates low to stimulate the economy, encourage new hiring and create GDP growth has led to cap rates dropping and lower mortgage financing rates for REITs. As a result, REITs have experienced rising net asset values (NAV) per share.
"I think that as the Fed continues to pursue this policy of low interest rates to stimulate the economy, it's a boon for REITs and REIT NAV prices," Brown said, "so I think REITs are in good position for the balance of 2012."
Research has shown that the interest rate on the 10-year Treasury now sits at its lowest point in 220 years, Brown noted. That provides evidence that "we're in a low growth world," he said.
"In that environment, I think investors will be very satisfied with a mid to high single-digit total return," Brown said. With REITs now yielding total returns of roughly 3.6 percent and projected earnings growth for later this year on the order 5 percent, Brown said REITs should provide an attractive investment option for the rest of 2012.
Brown cited a host of advantages to investing in REITs. Among them, he noted that they offer liquidity and daily pricing. Additionally, he said REITs represent the leaders of their respective property sectors.
"The best malls are owned by public REITs. The best apartment managers are the public REITs. Some of the best industrial property managers and some of the best community shopping managers are the public REITs," he said.
Looking abroad, Brown said he's currently overweighting Asian property stocks, many of which are trading at significant discounts to net asset value per share.
"The Asian property markets sold off heavily last year as the result of global economic crises, and they've bounced back somewhat," Brown said. "These countries typically have a budget surplus, growing populations and above-trend GDP growth, so they're in a pretty good position."
Overall, Brown said he sees improving fundamentals and "proactive government policy" benefiting companies operating in the Asian markets.