|REITs = seem beat-up like some cheesy DIY super hero|
Cash flow for the next year looks poised to increase on the back of favorable financing terms, continued strength in property fundamentals, and little in the way of forecast new supply. Based on our mid to high single digit cash flow growth outlook, and 5-6% distribution yield, high single to low double digit total returns appear achievable on a twelve month view. We acknowledge that higher interest rates could result in multiple compression which would temper our total return view."
The REIT ETFs from BMO (ZRE) and iShares (XRE) were both down about 15% from May highs. The following charts show that today you can buy into these REIT funds at late 2011 prices !
Most REITs’ existing debt, which is renewing at 10% a year, is priced 1.5-2% above todays market rates for new debt. So there is still an opportunity for REITs to to reduce interest costs when debt is refinanced.