REITs: No Game Changers in New Administration

PHOENIX—The implications of a Trump presidency were very much on the minds of REIT executives who converged upon the JW Marriott Phoenix Desert Ridge here last week for NAREIT's fall conference. A panel moderated by AvalonBay Communities CEO Timothy Naughton pointed to expectations of post-election volatility for the industry, and analysts came out of meetings seeing both broad-based and sector-specific effects of the new administration's economic policies.

“While no management team was willing to quantify any positive impact on SSNOI growth, there was a clear consensus that the new administration would be 'good for business,'” BTIG Research's Jim Sullivan wrote on Tuesday. “But no company that we met with was ready to conclude that the election would be a 'game changer'” in the fundamentals for portfolios or property sectors.

Looking specifically at shopping center and net lease REITs, Capital One Securities' Christopher Lucas noted that the election “ushered in additional economic uncertainty.” However, Lucas wrote this past Friday that expectations at NAREIT's fall conference reflected “a general optimism that fiscal policy could be an initial focus of the new unified government in Washington. Regardless, management teams universally noted that their operating and capital allocation plans were unchanged.”

Sullivan noted that while it's too early to predict which of President-elect Donald Trump's stated initiatives will actually be enacted over the next 12 months, “the market has determined that Trump's initial focus will be fiscally expansionary with lower individual and corporate income taxes and higher spending likely.” On the whole, he wrote, REIT management teams were “cautiously optimistic that the new policy direction would increase demand for space” and exert a positive impact on rent growth.

A team of Green Street Advisors analysts led by Cedrik Lachance made the rounds at the NAREIT gathering, and reported earlier this week that tax reform, previously seen as a long shot, has become “an odds-on favorite” as Republicans assume control of both the legislative and executive branches. Two scenarios bear closer scrutiny, according to Green Street's team: a more “limited” approach to tax reform, and a “comprehensive” package of changes. One possible casualty of the more comprehensive approach could be 1031 exchanges; another could be the ability to deduct business interest, potentially having “a big impact on valuation and deal flow.”

On a sector-by-sector basis, the outlook is mixed. Sullivan reported that office REITs could benefit from strong job growth in key West Coast markets and from a rollback of financial regulations boosting occupancy in New York City. Conversely, he wrote, the rollback in financial rules could hamper industrial growth by loosening lending standards and creating too much new supply, while tariffs on imported goods could “constrain consumption.”

PHOENIX—The implications of a Trump presidency were very much on the minds of REIT executives who converged upon the JW Marriott Phoenix Desert Ridge here last week for NAREIT's fall conference. A panel moderated by AvalonBay Communities CEO Timothy Naughton pointed to expectations of post-election volatility for the industry, and analysts came out of meetings seeing both broad-based and sector-specific effects of the new administration's economic policies.

“While no management team was willing to quantify any positive impact on SSNOI growth, there was a clear consensus that the new administration would be 'good for business,'” BTIG Research's Jim Sullivan wrote on Tuesday. “But no company that we met with was ready to conclude that the election would be a 'game changer'” in the fundamentals for portfolios or property sectors.

Looking specifically at shopping center and net lease REITs, Capital One Securities' Christopher Lucas noted that the election “ushered in additional economic uncertainty.” However, Lucas wrote this past Friday that expectations at NAREIT's fall conference reflected “a general optimism that fiscal policy could be an initial focus of the new unified government in Washington. Regardless, management teams universally noted that their operating and capital allocation plans were unchanged.”

Sullivan noted that while it's too early to predict which of President-elect Donald Trump's stated initiatives will actually be enacted over the next 12 months, “the market has determined that Trump's initial focus will be fiscally expansionary with lower individual and corporate income taxes and higher spending likely.” On the whole, he wrote, REIT management teams were “cautiously optimistic that the new policy direction would increase demand for space” and exert a positive impact on rent growth.

A team of Green Street Advisors analysts led by Cedrik Lachance made the rounds at the NAREIT gathering, and reported earlier this week that tax reform, previously seen as a long shot, has become “an odds-on favorite” as Republicans assume control of both the legislative and executive branches. Two scenarios bear closer scrutiny, according to Green Street's team: a more “limited” approach to tax reform, and a “comprehensive” package of changes. One possible casualty of the more comprehensive approach could be 1031 exchanges; another could be the ability to deduct business interest, potentially having “a big impact on valuation and deal flow.”

On a sector-by-sector basis, the outlook is mixed. Sullivan reported that office REITs could benefit from strong job growth in key West Coast markets and from a rollback of financial regulations boosting occupancy in New York City. Conversely, he wrote, the rollback in financial rules could hamper industrial growth by loosening lending standards and creating too much new supply, while tariffs on imported goods could “constrain consumption.”