Jones Lang LaSalle
REITs outperform S&P 500 for 6 year in a row
The REIT sector posted a total return of 12.1% in 2005, above our expectations at the start of the year which called for returns of 5% to 10%. While REIT returns were volatile during the year, the sector outperformed the S&P 500 which posted a total return of 4.9% as rising interest rates, higher energy prices, and a slowing housing market weighed on the performance of the overall market.
2006 Outlook - Expect REITs to post 8% to 10% gains
With real estate fundamentals improving, we expect REITs to post a total return of 8% to 10% in 2006 which is a modest deceleration from 2005 and a sharp decline from the 31.5% gain registered in 2004. Our cautious stance stems from the fact that REITs appear expensive using several valuation metrics which suggests that multiple contraction is possible next year.
Stock picking, not sector allocation, key issue for 06
After overweighting the mall sector for 3 years, we believe that stock picking will be more important than sector allocation during 2006. This change in strategy stems from the fact that retail fundamentals are "more cloudy" today while the recovery is well underway in the apartment, office, and industrial sectors.
Top picks for 2006
Apartments - Our top picks include Equity Residential (EQR), the nation's largest apartment owner, and Archstone-Smith (ASN), an owner of upscale apartments with large concentrations in Washington D.C. and S. California.
Retail - Our top picks in retail include General Growth (GGP) - the second largest mall company - given its above average growth prospects as well as Federal Realty (FRT) and Regency Centers (REG) since these companies possess the highest quality shopping center portfolios and should experience less disruption if retailer bankruptcies rise in 2006.
Office - Our top picks in the office sector include Vornado (VNO), Boston Properties (BXP), and Kilroy Realty (KRC) since the first two companies have large concentrations in Washington D.C and NYC while KRC generates over 80% of its cash flow from office buildings in San Diego and Los Angeles.
Industrial - Our top pick in this sector is Prologis (PLD), a global provider of distribution space with a portfolio of more than 343 msf spanning North America, Europe, and Asia.
To reply to Steve Sakwa directly, click here or call (1) 212 449-0335
REITs outperform S&P 500 for 6 year in a row
The REIT sector posted a total return of 12.1% in 2005, above our expectations at the start of the year which called for returns of 5% to 10%. While REIT returns were volatile during the year, the sector outperformed the S&P 500 which posted a total return of 4.9% as rising interest rates, higher energy prices, and a slowing housing market weighed on the performance of the overall market.
2006 Outlook - Expect REITs to post 8% to 10% gains
With real estate fundamentals improving, we expect REITs to post a total return of 8% to 10% in 2006 which is a modest deceleration from 2005 and a sharp decline from the 31.5% gain registered in 2004. Our cautious stance stems from the fact that REITs appear expensive using several valuation metrics which suggests that multiple contraction is possible next year.
Stock picking, not sector allocation, key issue for 06
After overweighting the mall sector for 3 years, we believe that stock picking will be more important than sector allocation during 2006. This change in strategy stems from the fact that retail fundamentals are "more cloudy" today while the recovery is well underway in the apartment, office, and industrial sectors.
Top picks for 2006
Apartments - Our top picks include Equity Residential (EQR), the nation's largest apartment owner, and Archstone-Smith (ASN), an owner of upscale apartments with large concentrations in Washington D.C. and S. California.
Retail - Our top picks in retail include General Growth (GGP) - the second largest mall company - given its above average growth prospects as well as Federal Realty (FRT) and Regency Centers (REG) since these companies possess the highest quality shopping center portfolios and should experience less disruption if retailer bankruptcies rise in 2006.
Office - Our top picks in the office sector include Vornado (VNO), Boston Properties (BXP), and Kilroy Realty (KRC) since the first two companies have large concentrations in Washington D.C and NYC while KRC generates over 80% of its cash flow from office buildings in San Diego and Los Angeles.
Industrial - Our top pick in this sector is Prologis (PLD), a global provider of distribution space with a portfolio of more than 343 msf spanning North America, Europe, and Asia.
To reply to Steve Sakwa directly, click here or call (1) 212 449-0335
posted by Jones Lang LaSalle NJ News Blog at 11:16 AM
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