REITs Speak Up
W. P. Carey’s unique-to-REITs model of owning an investment manager has its advantages, CEO Trevor Bond said at NAREIT’s REITWeek this week. Trevor says it’s a good way to grow revenue (it's 10% of W.P. Carey's) without issuing equity that dilutes value. The net lease investor used this method to raise $500M during the downturn when raising equity was harder but acquisition opps looked good. (They were raising equity before it was cool.) He says the funds help buffer against cash-flow bumps and smooth out earnings. This year, it’s raised $800M (it’s been snapping up properties in Houston for the last few years, so we’re hoping to grab some of those funds too), and the company also uses its own balance sheet for acquisitions, especially for deals in which the cost of capital would be too high for a fund.
Prologis isn’t afraid to contradict your econ prof (we tried to do that and ended up with a dunce cap)—CEO Hamid Moghadam says there’s more to the decision to build than just supply and demand; don’t forget rental rates. US industrial deliveries have grown from 20M SF in 2011 to 65M SF in 2013 and still fell dramatically short of last year’s demand for 225M SF, Hamid says. Next year, he expects, 110M SF of new inventory will be built, but that’ll be half the anticipated demand of 200M SF. Rents in the Inland Empire, Dallas, and Houston are high enough to justify the construction that’s happening there, Hamid says, but rents haven’t bounced back enough elsewhere to justify construction, despite that demand. Prologis aims for $2.5B worth of development per year but is on pace for $2B now, owing to a slower than anticipated recovery in Europe and more sluggish than expected market in Mexico.