Capital Markets, Regulatory Shake-ups Ruffle REIT Industry
According to the 2017 BDO RiskFactor Report for REITs
, competition for assets at lucrative prices, the anticipation of tax reform and the likely drumbeat of interest rate hikes rank high on REITs' risk radar.
BDO further reports that 2017 is leaving a string of broken stock market records in its wake, but REITs have seen more modest boosts in performance. REITs registered 3.41 percent annual growth in early-June, compared to the broader S&P 500's 9.91 gains.
The top 100 REITs unanimously cite access to capital, financing and liquidity as a risk to their business, up from 96 percent in 2016 and 93 percent in 2014. REITs are bracing for the impact of multiple interest rate increases, which REITs worry could lead to restricted access to equity and more expensive debt in the long term.
"After enjoying several years of growth following the economic crisis, investors are beginning to take a more cautious approach," said Stuart Eisenberg, partner and national leader of BDO's Real Estate and Construction practice. "A potential slowdown in the market, combined with concerns of rising interest rates, a lack of continued access to capital, and disruptions in several REIT sectors, has added to the uncertainty. For REITs navigating the current economic environment, there is a real possibility this confluence of factors may result in slower growth." The following chart highlights the top risk factors cited in the most recent SEC 10-K filings from the 100 largest U.S. REITs: