Improving Fundamentals Bolster CRE Earnings Outlook

Article excerpt

Despite a general pullback in the second quarter, most global real estate companies posted positive results. A report from LaSalle Investment Management, Chicago, said improving real estate fundamentals should help drive healthy earnings growth over the next few years, with worldwide revenues expected to be a strong source of that growth.

According to LaSalle's Quarterly Review and Outlook, year-to-date, property stocks have gained 8.1 percent; the broad market index is up 3.3 percent. Ernst-fan de Leeuw, head of LaSalle's real estate securities (Europe), said the company expects worldwide earnings per share growth to be in the mid-to high single-digits per annum through 2013, with the strongest growth in the United States, United Kingdom and Hong Kong.

"The majority of public real estate companies are well positioned for the current market environment with higher-quality assets, strong balance sheets and quality management teams, de Leeuw said. "With the rebound in stock prices, capital-raising activity completed and access to the debt markets in favorable terms, the public companies are in a strong position to pursue acquisition opportunities and grow their portfolios."

The report noted the outlook for real estate securities remains closely tied to credit markets and the outlook for the economy. The most recent economic forecasts for the global economy, while still showing reasonable growth of 3.4 percent in 2011 and 3.9 percent in 2012, are somewhat lower than those made earlier in the year as credit concerns remain in the euro zone and efforts by Asian governments to control speculation and inflation may lead to somewhat slower growth in those economies.

Real estate fundamental trends are expected to vary according to the growth of individual economies and the pace of new supply. In the United States and Europe, the report anticipates a gradual improvement in real estate fundamentals over the next 12 to 24 months driven by moderate growth in demand and limited new supply. …

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