Things may be looking up for REIT investors in the long term, but it could take a while for market fundamentals to improve. According to Deutsche Bank analyst Vin Chao, the benefits of positive GDP trends and favorable policy changes in Washington likely won’t kick in for REIT investors for a while.
“Given the lagging nature of leasing, we wouldn’t expect the positives from policy changes to boost cash flows until 2018 and beyond, while the timing and magnitude of potential policy changes remain in question, making 2017 a transition year for REITs,” Chao explained.
Deutsche Bank projects a 0.7 percent rise in 10-year yields in 2017, which Chao says will trigger the first cap rate expansion since 2009.
He expects weakness in many REIT names until at least the second half of 2017.
In the meantime, Deutsche Bank sees continued secular demand boosting data centers and industrial REITs.
Chao names CyrusOne Inc CONE and Paramount Group Inc PGRE its top two REIT picks headed into 2017.
A List Of Downgrades
The firm also downgraded the following named from Buy to Hold:
- Boston Properties, Inc. BXP.
- Kilroy Realty Corp KRC.
- SL Green Realty Corp SLG.
- Retail Properties of America Inc RPAI.
- Ramco-Gershenson Properties Trust RPT.
- Simon Property Group Inc SPG.
- General Growth Properties Inc GGP.
- Digital Realty Trust, Inc. DLR.
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