In a recent report, Barclays analysts gave their 2015 outlook for real estate investment trusts (REITs). Overall, analysts see a tough environment for the industry this year.
Where Are The Catalysts?
Analysts don’t see many drivers to earnings growth for
REITs in 2015. They predict decelerating earnings growth in the space, and with valuations already at historically high levels, it’s hard to see a justification for outperformance. After surging 28 percent in 2014, REITs now trade at even higher multiples than they did before the financial crisis. Analysts believe additional multiple expansion is unlikely and are predicting 9 percent total return for REITs in 2015.
Related Link: Blackstone Just Bet On This Red Hot REIT Sector
Top Picks
Barclays' analysts selected their top REIT picks for 2015 in each of the following subsectors:
Industrials:
Analysts chose
Prologis IncPLD as their top pick because of projected general demand for industrial real estate, Prologis’ supply chain reconfiguration and its global development pipeline.
Apartments:
Analysts’ top pick is
Camden Property TrustCPT because of its attractive valuation and its exposure to Sunbelt markets.
Retail:
Analysts like
Kimco Realty Corp KIM because of the completion of its disposition program and its shopping center exposure.
Offices:
Analysts like
Alexandria Real Estate Equities IncARE because of its valuation and growth prospects.
Related Link: How To Get Rich Slowly In The REIT World
The Interest Rate Mystery
Historically, interest rates and REIT multiples have had a negative correlation. Real estate is a typical “safe haven” for investors during times of geopolitical uncertainty, and REITs' high yields are appealing in a low-interest environment. The consensus is that the Federal Reserve will likely raise interest rates sometime in mid-2015, and analysts believe that could put pressure on many REITs.