Citi Previews REITWeek, Along With Some Other REIT Trends

OCiti Research analyst Michael Bilerman and his team on Monday published a report focused on the REIT industry "big picture" one day before the kick-off of NAREIT Investor Forum to be held in NYC June 9 - June 11, 2015.

Citi noted that after starting off the year with a 10 percent pop in January, REIT shares are now down an average of 4 percent, mainly on rising interest rate concerns.

REIT Sector Preview

Healthcare: The sector is down 9 percent year-to-date vs. 4 percent for the broader REIT sector. Citi noted this sector is more sensitive to interest rates, and is being "worn down" by fears of spreads narrowing as rates tick up.

Office: "Positive trends: good fundamentals, continued institutional bid for core assets at low cap rates (CBDs), & healthy demand for developments." It remains to be seen how office REITs focused on suburban and secondary markets will be able to overcome secular shifts favoring urban live-work-play and gateway city job creation.

Citi is looking to hear updates on large scale office development projects, including:
Boston Properties, Inc. BXP Salesforce Tower, still at site development stage.

• SL Green Realty Corp SLG 1 Vanderbilt, following zoning approvals.
• Kilroy Realty Corp KRC Kilroy's One Paseo project received approval, but the overall project will now be smaller than Citi expected.
• Vornado Realty Trust VNO plans for Penn Plaza after acquiring a few new parcels and 220 Central Park South which has already seen some presales, among many others.

Citi will be looking for updates on preleasing, yield and project milestones.

Residential: Citi is looking to hear how landlords have fared during "peak leasing season." The sector trades at an overall 5 percent discount to NAVs, and Citi expects management to be "bullish on fundamentals" and discuss private sector asset valuations.

Retail: After a positive ICSC RECon meeting in Las Vegas two weeks ago, Citi expects retail landlords to remain positive during NAREIT presentations. Retailers are looking to expand into high quality, well located space; while reduced vacancy is also fueling redevelopment projects.

Self-Storage: Given strong fundamentals, including "very high occupancy levels at over 90%, continued growth in same-store revenues will be rate driven. Investors will look for updates on success in raising street (asking) rents, an indicator of demand given peak occupancy levels, as well as success in raising rates on existing customers."

Lodging: Citi expects to hear updates on New York City and Washington D.C. markets, and expects West Coast and CBD markets to be the focus for expansions and acquisitions.

Data Centers: Citi "focus at NAREIT next week will be to better understand the long term supply/demand trends in different markets, measure progress on each REIT's desire/move to go down the retail stack, thoughts on M&A, quantify the G&A impact of new hires and strategy shifts."