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Better year for REITs predicted by Lehman Bros.' analyst.

Lehman Brothers' REIT industry analyst Steven Hash recently released his real estate industry outlook and forecast report for 1999.

In the report, "REITs: Outlook for 1999," Hash forecasts that REITs will deliver a 20 percent total return for 1999. In addition, he also believes that space markets in the U.S. should remain tight during the year and probably next year, and that investors should focus their attention on offices and hotels for their real estate investment decisions.

"We are very bullish for REITs in 1999 and believe the total return for the group could be as high as 20 percent, with an outside possibility of exceeding this number," said Hash in his report. "Why? Four reasons; Low valuations have overshot the fundamentals; Cash-flow estimates should be met in 1999 and 2000; The multiple should at least be flat, and may expand; and Yield is 7.5 percent, with ample coverage."

"We have learned from, and understood, what went wrong in 1998, and that is important to project 1999," Hash said.

His report targeted the office and hotel sectors as the ones to focus upon. He notes that office company fundamentals are stronger than many believe; that we are far from a cyclical peak; and that rent growth should continue to be positive, although at a slower pace than in recent past. As for hotels, he says they are attractive because the group appears to be priced as if a major recession is around the corner, which he does not believe is the case. Hash also looks for large cap real estate stocks to outperform small cap stocks.

Of the major trends forecasted for the year, Hash said that while fundamentals are not improving, they are not as weak as people believe. Rather, 1999 and 2000 should be characterized by moderating fundamentals, lower inflation and lower interest rates - "The Age of Equilibrium," as he calls it.

"We do not believe that fundamentals will improve in 1999, or that multiples will expand significantly," Hash said. "Year 2000 earnings are the key. Several factors should help FFFO growth in 1999 and 2000, which we do not believe are incorporated into consensus. These include margin expansion, acquisitions, consolidation, and financial leverage."

Hash is a senior vice president and senior equity research analysts for the REIT industry. He leads a real estate research department consisting of seven professionals who focus not only on specific companies in the REIT sector, but also on demographic trends within the real estate sector. Hash was selected a first team analyst in Institutional Investors' annual survey for REITs and No. 1 in the Greenwich Survey.

Lehman Brothers is a global investment bank with leadership positions in corporate finance, advisory services, municipal finance and fixed income and equity sales, trading and research. Lehman Brothers serves the financial needs of corporate, government and institutional clients, and high net-worth individuals through offices in major financial centers worldwide.
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Title Annotation:real estate investment trusts
Publication:Real Estate Weekly
Date:Jan 27, 1999
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