Reit Magazine - January/February 2021 - 50

better having some clarity on a
return-to-normal timeline for
the economy, we think it will
take time for the mall sector to
stabilize.
We expect to see more
permanent NOI impairment as
the pandemic has accelerated
pre-existing structural changes
to brick and mortar retail and
discretionary spending habits.
With capex needs rising and
tenant fallout likely to accelerate
over the next six months, we
remain cautious on the sector.

AS LANDLORDS TO THE BROADER ECONOMY,
REIT STOCKS SHOULD BE ABLE TO RECOVER
LOST GROUND IN 2021 AS THE WORLD MOVES
PAST THE CURRENT COVID-19 PANDEMIC AND
BEGINS A NEW GROWTH CYCLE.

- Michael Bilerman

On the other hand, open-air
strip centers have been less
impacted by mandated closures
and have seen a quicker return
in traffic levels versus enclosed
malls, driven by more necessity-based tenant exposure
and more curbside pickup
optionality. Grocery store visits
remained strong throughout the
pandemic, helping to maintain
regular traffic to centers. Rent

50 |

reit

collections have reached a more
stable level, which has improved
cash flow positions and allowed
many REITs to start reinstating
dividends.
There seems to be a
bit of a wait-and-see
approach on how other
sectors such as office,
multifamily, and student
housing may be affected.
What's your view on the
challenges ahead in these
sectors?
Trends in the office space have
been dominated by FOMO, or
fear of missing out, as investors
(both direct and equity) watched
share prices drop to levels that
implied a big discount to private
values earlier in the pandemic.
Recent rebounds were volatile,
and work from home impacts
come back to human psychology
and the optics and interactions
of being in the office.
Valuations remain depressed
but fundamentals aren't necessarily much better, driving
sentiment that remains largely
negative. We expect that the
office sector will underperform
and are underweight in our
model portfolio as nearterm upside would require a
significant positive shift in fundamentals or industry trends,
something that we simply don't
see near term.
We expect the broader
residential sector to outperform
and favor manufactured housing and single family rentals
over multifamily and student
housing. Within apartments,
we expect operating results to
continue to feel the impact of
COVID-19, mainly through
pressure on effective rent
change as REITs use concessions on stabilized assets to
maintain occupancy in many
coastal/urban markets. We
expect the Sunbelt markets
to outperform operationally
versus coastal markets. The
apartment REITs have shown
resiliency in rent payments,

Q

trending above the national
average in collections.
Looking ahead to
2021, what do you
think of the opportunities
ahead for some REITs to
shift to offense and be
aggressive on property
acquisitions or even
potential M&A deals?
While transaction volumes have
decreased significantly driven
by the pandemic, volumes are
likely to rise over the next 12-24
months given a continued
record level of " dry powder "
raised for real estate investment,
as well as the capital markets
for REITs being generally open
with a number of financing
options at the company and
asset level.
In addition, as vaccines
continue to be deployed and
have the desired effect, CEOs
will have the confidence to
begin to plan more meaningfully for the future and look at
external growth possibilities.
Shareholder activism also
remains front and center in
the real estate industry, which
could push sellers to look at
possibilities.
In terms of combinations, certain acquirers will benefit more
significantly from synergies
which can be created via public
to public combinations, and also
take advantage of a superior cost
and access to capital.
While social issues still can
impede deals from occurring,
and usually are the biggest
inhibitor to REIT M&A from
a portfolio perspective, there
are also significantly less
" unwanted " assets in REIT portfolios today as many companies
have honed their strategies and
asset focus over the past 10
years. This means that acquirers
are not inheriting other people's
problems.
Lastly, it's just in the numbers.
With about 180 publicly listed
REITs and varying valuations,
the likelihood for deals is there.

Q



Reit Magazine - January/February 2021

Table of Contents for the Digital Edition of Reit Magazine - January/February 2021

Contents
Reit Magazine - January/February 2021 - Cover1
Reit Magazine - January/February 2021 - Contents
Reit Magazine - January/February 2021 - 1
Reit Magazine - January/February 2021 - 2
Reit Magazine - January/February 2021 - 3
Reit Magazine - January/February 2021 - 4
Reit Magazine - January/February 2021 - 5
Reit Magazine - January/February 2021 - 6
Reit Magazine - January/February 2021 - 7
Reit Magazine - January/February 2021 - 8
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Reit Magazine - January/February 2021 - Cover3
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