Low Treasury yields, a positive spread between the cost of buying and financing, and increased consumer spending are boosting revenues for commercial REITs, says Alexander D. Goldfarb, Managing Director and Senior REIT Analyst at Sandler O’Neill + Partners LP.
“There are companies, just generically, where we’re looking at 10%, 15%, 20% dividend increases next year,” Goldfarb said. “It’s really a function of, one, a lot of companies cut their dividend back, so now they’re raising them once again; and two, the real estate [market] has recovered a lot stronger than any of us would have imagined.”
Goldfarb points to Developers Diversified Realty Corp. (DDR) as a key “buy” pick among commercial REITs. Goldfarb says DDR has divested itself from bad investments over the past two years, has gotten its balance sheet back in order and is engaging in long-term plans that align the shareholders’ and the management’s goals.
“[DDR is] investment-grade rated by Moody’s, and they’ve done all the heavy lifting to get the investment-grade rating from either Fitch or S&P. It’s just a matter of when those agencies come around to upgrading DDR back to investment grade,” Goldfarb said.
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