Cohen & Steers calls end of real estate equities bear market at EPRA annual conference

The approximately two-year bear market in real estate stocks has run its course and fundamental recovery is already underway in key markets in Asia, to be followed by the US next year and Europe in 2011, analysts from leading investment firm Cohen & Steers told a news conference on Thursday 3 September.

Cohen & Steers' Co-Chairman and Co-Chief Executive, Robert Steers and Global Portfolio Manager, Scott Crowe, were speaking at the European Public Real Estate Association (EPRA) annual conference being held near Brussels.

Robert Steers said: "In recent months we have seen significant and rapid change in the global real estate securities markets as the monetary and fiscal stimuli provided by governments has helped to bring an end to the recession. The recapitalization of listed real
estate companies is also progressing well, and together these factors will initiate a new positive return cycle for stocks."

In a new Cohen & Steers research paper the firm said that the real estate total return cycle is likely to unfold in three phases, starting with the completion of the equity recapitalization that is underway to deleverage companies from their debt burdens. This has already realized nearly US $40 billion in capital raisings around the world since December 2008 through secondary issuance, rights offerings and corporate bond offerings.

The second phase, preceding the final fundamental recovery in markets, will be characterized by significant acquisition opportunities in the US, Spain, Germany and France, and to a lesser extent in Asia.

Scott Crowe said: "In the longer term we believe real estate values will settle at higher levels than are generally expected by the market, as we do not see capitalization rates (yields) spiking as high as many people anticipate. Net asset values (NAVs) for many real
estate stocks are rising, driven by better-than-expected cash flows and improving cap rates. Furthermore, companies are starting once again to acquire assets, which should also contribute to value creation."

The Cohen & Steers report concluded that the traditional 'four pillars' of attributes drawing investors to listed Real Estate Investment Trusts (REITs), including competitive total returns, attractive current income, moderate volatility and low correlations with other asset
classes, are beginning to reassert themselves.

As correlations with other assets start to diverge, volatility comes down and yields fall towards historical levels, the advantages of investing in listed real estate, and particularly REITs, will return, the company said.

Source: Bellier Financial

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