A Note of Caution in REITs’ 2018 Outlook

CHICAGO—“Healthy underlying operating performance” is a general theme as Morningstar Inc. surveys the US REIT universe in early 2018. However, equity analyst Brad Schwer also sees caution as a general watchword for investors entering that universe.

“Historically high asset prices for existing, stabilized institutional real estate is forcing the hand of many US REITs to focus on new development and redevelopment opportunities,” Schwer writes in an outlook report on real estate stocks. “Although we still acknowledge the opportunity for prudent capital allocation to achieve excess returns, we are cautious of firms overextending themselves into riskier investments.” That being the case, Schwer writes that the best bets for investment are “reasonably leveraged companies with solid prospects for long-term growth that can weather the natural cyclicality of the real estate markets.”

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