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The REIT story had its share of twists and turns in 2009, culminating in a happier ending for shareholders than
looked to be the case earlier in the year. Guiding the
industry’s efforts as NAREIT chair in 2010 is Debra
Cafaro, chairman, president and CEO of Ventas, Inc.
Cafaro says the REIT industry cleared a critical
hurdle in 2009.
“This past year has been tremendously challenging
for the REIT industry,” Cafaro said. “But it has also
been a year in which REITs have been validated by the
investment markets.”
REIT share prices have risen more than 100 percent
since hitting a low in early March 2009. Cafaro says
REITs’ ability to access equity and unsecured debt to the
tune of $35 billion in 2009 instilled confidence among in-
vestors that the REIT approach to real estate investment
provides staying power through peaks and troughs of the
market cycle.
However, Cafaro adds that the industry still has more
work to be done in 2010 to continue the momentum
gained in 2009. Issues still remain surrounding commercial real estate fundamentals, the overall economy and job
growth, as well as looming debt maturities.
“To be sure, there are significant challenges remaining,”
Cafaro said. “More equity will need to be raised in 2010,
and the REIT story must continue to be articulated to
investors large and small.”
MICHAEL BARNELLO, President & CEO
• LaSalle Hotel Properties (NYSE: LHO) • Sector: Lodging
Lesson Learned: “I think we’ve all earned a powerful lesson about le- verage. While it can help you signifi- cantly on the upside, it can be a dev- astating worry on the downside. When we look forward, we have to re-evaluate what the right leverage levels are.”
Challenges and Opportunities: “The challenge that we’re facing in the hotel business is that we’ve lost so much in terms of
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DEBRA CAFARO, Chairman, President & CEO and
NAREIT Chair
• Ventas, Inc. (NYSE: VTR) • Sector: Health Care
Lesson Learned: “Financial strength and flexibility are paramount. When a downturn comes, it is often vicious and begins without warning. This immediacy and severity give compa- nies no time to react if they are poorly positioned. In nasty downturns, capi- tal immediately flows away from illiquid assets. In these moments, li- quidity is value. Finally, the down- ward spiral of market fear and distress feeds on itself and magnifies flaws and weaknesses.”
Challenges and Opportunities: “The health care sector should
provide stable to increasing cash flows in 2010, comprised of
steady internal growth and an increasing amount of earnings
from external growth opportunities. There are immediate investment opportunities, because owners still have equity in their
assets and want to sell to achieve liquidity. Clarity from health
care reform could be a catalyst to more certainty—and higher
valuations—in the nursing home and hospital businesses.”
Role of REITs: “As we look to address the roughly $1.5 trillion of commercial real estate debt maturities over the next
three years, REITs that have liquidity and access to capital will
be part of the solution for the commercial real estate industry.
Using these advantages, REITs will be able to grow and acquire
assets from private sellers. I expect REITs to attract more equity
capital in 2010 from investors who see the opportunity to enjoy
good returns from REITs consolidating private real estate into
public vehicles.”
demand and occupancy in 2009 that we need to get back. In
combination with that is the problem that supply has increased
significantly. In 2010, we’re looking at the industry starting at the
lowest occupancy level in the trackable history of the hotel business. As a result, with occupancy so low and new supply coming
online, we’re still facing pricing pressure. Until we get to a point
where we can improve occupancy, we’re going to face that pricing
pressure.”
