2023 REIT Outlook: Poised to Perform
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| Q1 2023
2023 REIT Outlook: Uma Moriarity, CFA
Senior Investment
Poised to Perform
Strategist
The unending volatility and significant regime changes we have experienced in the market since the onset of
the COVID-19 pandemic make the normalcy of the prior decade seem like a distant memory. In the last year
alone, investors have grappled with inflation levels not seen in this century, heightened geopolitical tensions, and
dramatic shifts in monetary policy that have wreaked havoc across the capital markets. As we look forward into
2023, with the eventuality of a recession front and center, the concept of resiliency is top of mind for allocators
seeking attractive risk-adjusted returns. Here we believe REITs are poised to perform for investor portfolios,
especially versus private real estate and broader equities. In this paper, we layer the current macroeconomic
backdrop against historical data to make an informed forecast as to how real estate – specifically the public REIT
market – will fare during the upcoming cycle. The conclusion suggests a positive turn for most property sectors
and an opportunity to capture the upside of a familiar pattern.
The statements and conclusions made in this presentation are not guarantees and are the opinion of CenterSquare Investment
Management and its employees. Any statements and opinions expressed are as of the date of publication and are subject to change as
economic and market conditions dictate. Past performance is not indicative of future results.
The Macroeconomic State: Shifting from Inflation to Recession
Inflation rightfully dominated headlines throughout 2022. Today, however, these primary considerations point to
peak inflation being behind us:
Contracting money supply. The significant growth in the money supply which fueled inflation over the last two
years has been reversed. With monetary and fiscal policies dramatically shifting to temper demand, we have
seen the sharpest ever decline in real money supply (Figure 1).
Figure 1: Real Money Supply (1960-2022)
25%
Real Money Supply (M2) YoY%
20%
15%
10%
5%
0%
-5%
-10%
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
Source: Federal Reserve Bank of St. Louis, November 30, 2022.
Decreasing housing costs. Shelter accounts for about half of the services components of the Consumer Price
Index (CPI) and, notably, is measured at a meaningful lag. While rents were skyrocketing through the beginning
of 2022, data shows they peaked last summer and have been rolling back ever since. If core CPI were calculated
using real-time shelter costs, we would already be seeing flat or declining month-over-month inflation (Figure 2).
Figure 2: Core CPI Inflation with Private New Rent Indices for Shelter (2021-2022)
18%
16%
% Change, Annual Rate
14%
12%
10%
8%
6%
4%
2%
0%
-2%
01/21
02/21
03/21
04/21
05/21
06/21
07/21
08/21
09/21
10/21
11/21
12/21
01/22
02/22
03/22
04/22
05/22
06/22
07/22
08/22
09/22
10/22
11/22
12/22
1-month Change 3-month Change
Source: Bureau of Labor Statistics, Zillow, Apartment List, Macrobound, December 31, 2022.
2023 REIT Outlook: Poised to Perform 2
Cooling wage inflation. In the beginning of 2023, we have seen early signs of the labor market cooling as nominal
wage growth has slowed from its peak of 5.6% last spring to 4.4% today. Forward-looking expectations are
pointing to further easing of wage pressures (Figure 3).
Figure 3: CFO Survey of Wage Growth Expectations (2014-2023)
80%
% expecting increase minus
% expecting decrease
60%
40%
20%
0%
01/14
01/15
01/16
01/17
01/18
01/19
01/20
01/21
01/22
01/23
Source: Evercore ISI Company Surveys, January 30, 2023.
Despite these signs, the strength of the labor market remains a threat to the Fed’s inflation policy targets. Current
wage inflation remains well above the 3% average wage growth we’ve seen over the last economic cycle. There
are still nearly 1.9x as many job openings as there are people actively looking for jobs, and the unemployment rate
remains near historic lows. This labor market strength is giving the Fed additional incentive to continue to tighten
monetary policy to ensure demand is tempered enough to control services inflation that has remained at elevated
levels. The unfortunate reality of achieving the Fed’s goal of slowing the labor market is a recession, which feels
like an inevitable outcome of the current policy, even if the resulting recession is mild.
2023 REIT Outlook: Poised to Perform 3
Recession and REITs: An Opportunity for Outperformance
There has been a drastic pivot in the market’s focus from inflation and rising rates in 2022 to a recession in 2023.
However, we don’t anticipate the impact of recession fears to be as detrimental to the listed REIT markets as rising
rates were last year for two reasons. First, the starting point for valuations today is already adjusted to reflect
higher yields; second, REITs are positioned better today than prior recessions, particularly the Global Financial
Crisis (GFC).
REITs started 2022 priced at an implied Figure 4: REIT Implied Cap Rate Expansion (2022)
4.14% cap rate when the 10-year treasury
yield was at 1.5%. By the end of the year,
9% 300
10-year treasury yields had expanded
8%
to 3.6%, and in response, REIT implied 254 250
Cap Rate Expansion (bps)
REIT Implied Cap Rate
cap rates expanded to 5.80%. This shift 7% 230
represented a 166 basis points (bps) 6% 200
expansion in the overall REIT market, 5% 166 157 150
with all core sectors feeling the impact 145
4%
of yield expansion throughout the year. 3% 100
From this starting point, any negative
2%
impact on incomes due to a recession
4.14%
5.76%
5.80%
7.04%
7.81%
50
1%
(which historically has been minimal and
is expected to be even less so today), will 0% 0
Industrial Apartment All REITs Retail Office
pale in comparison to this drastic shift
in valuations caused by yield expansion.
REIT Implied Cap Rate (12/31/22) 2022 Cap Rate Expansion
As a result, current valuations seem
significantly more de-risked compared to Source: CenterSquare, December 31, 2022. Please refer to our implied cap rate
the beginning of 2022. methodology at the end of this document.
Moving on to fundamentals, the capital management of public REIT companies is superior to what it was going
into the GFC (Figure 5). Leverage, as measured by debt to EBITDA or debt to asset value, is at much healthier and
manageable levels. REITs’ development pipelines have been right sized and are largely pre-funded. Dividend yield
and cap rate premiums compared to the 10-year treasury yield are not overly stretched. Given the strength of
balance sheets, we’re not anticipating REITs to be forced to employ the same level of dilutive equity issuances to
maintain operations as they did during the GFC.
Figure 5: Public REIT Company Metrics - Comparison During Historical Downturns
May June February December December
REIT Metrics
1998 2000 2007 2019 2022
Leverage
Debt to Asset Value 33% 44% 46% 31% 30%
Debt to EBITDA 6.3x 5.5x 8.0x 5.4x 5.8x
Dividend
Dividend Yield 5.55% 7.61% 3.60% 4.00% 4.15%
Dividend yield spread vs. 10-year treasury -0.16% 1.58% -1.05% 1.80% 0.27%
Real Estate Pricing
Cap rate 9.27% 9.06% 5.70% 5.50% 5.80%
Cap rate spread vs. 10-year treasury 3.56% 3.03% 1.05% 3.30% 1.92%
Equity Pricing
AFFO multiple 12.5x 8.2x 22.9x 21.1x 18.0x
Ratio of REIT P/AFFO multiple to the S&P P/E 0.57x 0.39x 1.72x 1.07x 1.06x
Source: CenterSquare and Bloomberg, December 31, 2022.
2023 REIT Outlook: Poised to Perform 4
Further, real estate fundamentals on the ground are much stronger today than they were heading into prior
downturns for all major property types, except office. In fact, current demand for commercial real estate has
surpassed levels many veterans have seen in their careers. As a result, vacancy rates across most core property
types are far lower today than during most downturns have faced in the past century (Figure 6).
Figure 6: Vacancy Rates Across Property Sectors During Economic Downturns
12.5%
10.1%
9.6%
8.1%
7.9%
7.0%
6.7%
6.3%
6.1%
5.8%
5.7%
5.2%
4.6%
4.2%
4.0%
Office Retail Industrial Apartment
Pre-Tech Bust Pre-GFC Pre-COVID Current
Source: CoStar, Pre-Tech bust is 2001 Q1, Pre-GFC is 2007 Q4, Pre-COVID is 2020 Q1, and current is 2022 Q4, January 31, 2023.
As it relates to the office sector, structural headwinds have been building here for years even before COVID. The
pandemic-induced shift toward remote and hybrid work accelerated the rationalization of office space into new,
high-quality, well-located assets. As a result, office vacancy levels across the country are higher than we have seen
historically. From this precarious starting position, an impending economic slowdown that compels companies
to further rationalize their expenses translates to a major reckoning in the office sector. This disruption is similar
to what occurred in low quality retail real estate as consumer spending shifted online. The counter balance to the
low demand for office is that developers are responding in tandem. With the office development pipeline at just
1.6% of existing stock nationally, it is significantly lower than during previous downturns.
Figure 7: REIT Market Composition (2007 vs. 2022) Fortunately for REIT investors, the
property composition of the REIT market
has shifted since the GFC. While the
private market is still largely skewed
34% toward office and retail, these two sectors
combined accounted for less than 15%
64% of the U.S. REIT market in 2022. Even
more encouraging, the exposure to these
25%
challenged sectors has been replaced
over the last economic cycle by a higher
17% 9% concentration of alternative property
5% types, which account for 64% of the
12% 13% U.S. REIT market today (Figure 7). These
12% 10% alternative property types include areas
with meaningful structural demand
REIT Market in 2007 REIT Market in 2022
tailwinds – data centers, cold storage, cell
Apartment Industrial Office Retail Alternative towers, healthcare – that should provide
Source: Bloomberg, FTSE Nareit All Equity REITs (FNER) Index (REIT Market),
the REIT market with a more robust
December 31, 2022. Please refer to the definition of indices at the end of this buffer to absorb the economic stress of a
document. recession.
2023 REIT Outlook: Poised to Perform 5
REITs vs. Alternative Asset Classes
While REITs on a standalone basis are screening favorably today, their outlook is even brighter when compared
to alternatives like private equity real estate or broader equities. Compared to private equity real estate, REITs
currently offer investors access to real estate at a meaningfully discounted price. While the REIT market rapidly
incorporated the reality of current capital markets and looming risks into its valuations in real-time (and we
believe overreacted slightly), valuations and returns for the NCREIF Open-End Diversified Core Equity (NFI-ODCE)
Index, the most widely used index in the private real estate markets, were largely unaffected by these dynamics
last year. We anticipate this trend to reverse in 2023.
The rapid repricing in the public markets followed by a lagged repricing in the private markets is not a novel
pattern. We have seen this phenomenon play out repeatedly in the past: The public market bottoms at the same
time the private market peaks (Figure 8). At the beginning of 2023, trailing 12-month returns were at a 32%
spread between public and private markets. Historically, after the REIT market bottoms, it outperforms NFI-
ODCE funds in the following year by 42.8%. Even excluding the outsized impact of the GFC, the outperformance
of REITs versus NFI-ODCE funds in the following year after the bottom has been 26.2%.
Figure 8: Private and Public Markets - Trailing 12 month Returns (1978-2022)
40% 150%
Public Market Returns (FNER)
30%
Private Market Returns
100%
20%
(NFI-ODCE)
10% 50%
Today
0% 32%
-10% 0% Spread
-20%
-50%
-30%
-40% -100%
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
NFI-ODCE FNER Public vs. Private Spread
Source: Bloomberg, NCREIF Property Index, CenterSquare, December 31, 2022. Private Real Estate represented by NFI-ODCE Index; REITs
represented by FTSE Nareit All Equity REITs (FNER) Index.
This disparity has created a meaningful Figure 9: REIT Implied Cap Rates
valuation disconnect between public vs. Private Market Proxies (YE 2022)
and private markets. At CenterSquare,
we track a REIT ODCE proxy, which is a 6.38%
proprietary index of REITs intended to
5.11%
emulate NFI-ODCE-like exposure in the
4.22% 3.96%
REIT market as it relates to property
type, quality, etc. The cap rate for this
proxy expanded by 216 bps during 2022,
ending the year at 6.38% which is 242
bps above of the latest set of appraisal
cap rates in the private markets and
127 bps above actual private market REIT NFI-ODCE Proxy
transaction cap rates (Figure 9). The REIT ODCE Proxy Implied Cap Rates 12/31/2021
result is a significant opportunity for REIT ODCE Proxy Implied Cap Rates 12/31/2022
investors to capitalize on the pricing Private Market Cap Rates Appraisals 12/31/2022
arbitrage, resulting in capital flows out Private Market Cap Rates Transactions 12/31/2022
of private real estate vehicles like non- Source: CenterSquare REIT Cap Rate data, Private Real Estate represented by
traded REITs or open-end funds. NFI-ODCE Index, December 31, 2022.
2023 REIT Outlook: Poised to Perform 6REITs trading at such disconnected valuations compared to those of their underlying portfolios have historically
been a harbinger for strong performance in the periods that follow. After REITs trade below 85% of their underlying
net asset values, the total return for REITs in the following year has averaged 32.5% and the total return in the
following three years has averaged 61.7% (Figures 10 and 11). The one exception to this strong performance was
during the GFC because of the dilutive equity issuances we saw from REITs and the fact that real estate was at
the center of the financial crisis.
Figure 10: REIT Price to NAV Figure 11: Return Summary of Periods Following
(1997-2022) REIT Price/NAV at Less Than 85%
140%
FTSE Nareit FTSE Nareit
Duration of Equity REITs Equity REITs Index
130%
Discount Index Total Cumulative Total
in Months Return (1 year) Return (3 years)
120%
Oct. 1999 7 months 17.63% 44.03%
110% Aug. 2007 1 month (7.04%) (17.92%)
Feb. 2009 1 month 95.19% 187.51%
100%
Sep. 2011 1 month 32.61% 58.84%
90% Aug. 2015 1 month 25.47% 31.82%
Dec. 2018 1 month 26.00% 66.04%
80%
Mar. 2020 2 months 37.78% N.A.
70% Jun. 2022 6 months N.A. N.A.
1997
2000
2002
2005
2007
2010
2012
2015
2017
2020
2022
Average 32.52% 61.72%
Source: CenterSquare, Bloomberg, BAML estimates, December 31, 2022. Past performance is not a guarantee of any future results.
2023 REIT Outlook: Poised to Perform 7A Look Forward
The question remains: What does this analysis mean for real estate valuations and REIT return expectations going
forward? While it is impossible to predict the future, we have done work to triangulate a hypothesis that takes into
consideration valuation signals across public and private equity and debt markets. We observed peak valuations
across public and private markets at the end of 2021. Applied cap rates for the REIT market at that time were
in the low 4% range. Considering our expectation for benchmark debt yields to remain elevated at or above 3%
in the foreseeable future, we anticipate that cap rates will expand by about 90 bps by the time price discovery
normalizes into 2024. However, that cap rate expansion is coupled with net operating income (NOI) growth we
are experiencing across the real estate market as a function of strength in fundamentals including meaningful
rent growth. Taken together, this would indicate the underlying REIT real estate valuations should settle about
7% lower than peak pricing (Figure 12). In contrast, the REIT market’s performance in 2022, with prices down
27%, implied a 19% reduction in the underlying unlevered gross asset values. As the REIT market retraces the
overreaction and more appropriately values its underlying real estate portfolios, this analysis would imply a 15%
improvement in unlevered gross asset values (or 21% levered upside on REIT prices) by 2024 for the REIT market
(Figure 13).
Figure 12: Warranted REIT Repricing Figure 13: Implied REIT Pricing vs. Warranted Repricing
from 2021 (Peak) to 2024 (2021-2024)
REIT Gross Asset Value (Indexed to Peak at 12/21)
120 120
REIT Gross Asset Value (Indexed to Peak at 12/21)
100 100
+12%
100 -19% 93 100 93
-19% 81
+15%
80 80
60 60
40 40
20 20
- -
Warranted NOI Growth Cap Rate Warranted Warranted 2022 Implied REIT REIT Warranted
REIT Change REIT REIT Unlevered Valuation Unlevered REIT
Valuation Valuation Valuation Stock (2022) Upside Valuation
(Peak, 2021) (Repriced, (Peak, 2021) Performance (Repriced,
2024) 2024)
Source: CenterSquare and Bloomberg, December 31, 2022. The above data includes forward looking information; actual results may vary.
Note: Peak valuation at applied 4.4% cap rate, NOI growth assumed to be 10.5% in 2022, 2.4% in 2021, -1.1% in 2023, repriced valuation at
applied 5.3% cap rate.
2023 REIT Outlook: Poised to Perform 8REITs not only compare favorably to private real estate, but also show promise versus equities more broadly.
REITs offer investor portfolios exposure to cash flows generated through long-term leases that can withstand
the impact of short-term volatility in economic conditions. REIT cash flows do not tend to vary year to year, even
during recessionary times, like we typically see in equities. As a result, we aren’t seeing the same level of negative
earnings revisions in the REIT sector as we are seeing in the S&P 500 more broadly today (Figures 14 and 15).
Figure 14: REIT Earnings Revisions Figure 15: S&P 500 Earnings Revisions
vs. Relative Price (2022-2023) vs. Relative Price (2022-2023)
30% 80% 30% 80%
60% 60%
20% 20%
40% 40%
10% 20% 10% 20%
0% 0% 0% 0%
-20% -20%
-10% -10%
-40% -40%
-20% -60% -20% -60%
01/22
03/22
05/22
07/22
09/22
11/22
01/23
01/22
03/22
05/22
07/22
09/22
11/22
01/23
Real Estate Relative Price Y/Y (LS) S&P 500 Price Y/Y (LS)
Real Estate Relative Earnings Revisions Breadth (RS) S&P 500 Earnings Revisions Breadth (RS)
Source: FactSet, January 31, 2023.
Historical data suggests that REIT outperformance versus private real estate and broader equities will extend
beyond the recession through the recovery. Looking back through the late 1970s, we find that even though REITs
underperformed private real estate in the four quarters before a recession (which we’ve already experienced),
REITs outperformed private real estate during and for the four quarters after a recession (Figure 16). When looking
at REITs versus equities, we find that historically REITs also outperform broader equity markets as measured by
the Russell 1000 Index leading into, during, and after a recession.
Figure 16: Average Annualized Total Returns Before, During and After U.S. Recessions
22.7%
25%
15.9%
15.3%
13.1%
20%
8.2%
15%
5.7%
5.2%
10%
0.6%
5%
0%
-5%
-2.0%
-10%
-15%
Before Recession (4 Quarters) During Recession (Annualized) After Recession (4 Quarters)
Russell 1000 Index FTSE Nareit All Equity Index NFI-ODCE Index
Source: NAREIT, Bloomberg, January 31, 2023.
2023 REIT Outlook: Poised to Perform 9Conclusion
To assert that the last three years have been some of the most challenging on a global economic scale — and for
the real estate market specifically — is stating the obvious. A looming recession will prolong the pain through
2023 for most asset classes. Yet, we believe there is a clear light at the end of this tunnel with REITS leading the
way toward that recovery at a meaningful pace. The public real estate market has demonstrated considerable
resiliency from economic downturns in the past. We anticipate this cycle will rhyme with history with an important
positive caveat that REITs are far better positioned than during previous downturns. For these reasons, we believe
REIT investors have significant opportunity to fortify their portfolios through continued investment into the public
real estate market as we move through the year.
About
the Author
Uma Moriarity is the Senior Investment Strategist and Global ESG Lead for CenterSquare
Investment Management. She focuses on investment strategy and thought leadership across
the Firm’s public and private real estate platforms and is part of the listed real estate investment
team. Uma leads the Firm’s Environmental, Social, and Governance (ESG) strategy to incorporate
ESG into the decision-making and management of listed and private real estate investments to
create long-term value,reduce risk,and generate superior risk-adjusted investment returns.Prior
to joining CenterSquare, she spent three years in corporate strategy and planning at ExxonMobil
in Houston. Uma graduated from The Pennsylvania State University with Interdisciplinary
Honors and High Distinction and holds a B.S. in Finance with a minor in International Business,
Uma Moriarity, CFA B.S. in Accounting, and Master of Accountancy. She is a CFA charterholder and member of the
Senior Investment CFA Institute, a LEED Green Associate, and a member of the ULI San Francisco Young Leaders
Strategist and Global Group Steering Committee and Sustainability Committee. She currently serves on the Board of
ESG Lead Directors for Green Building United and the Penn State Smeal Sustainability Advisory Board.
2023 REIT Outlook: Poised to Perform 10Disclosures
Any statement of opinion constitutes only the current opinion and periodic overbuilding. Real estate income and values
of CenterSquare and its employees, which are subject to may also be greatly affected by demographic trends, such as
change and which CenterSquare does not undertake to population shifts or changing tastes and values. Companies
update. in the real estate industry may be adversely affected by
environmental conditions. Government actions, such as tax
Material in this publication is for general information only increases, zoning law changes or environmental regulations,
and is not intended to provide specific investment advice or may also have a major impact on real estate. Changing
recommendations for any purchase or sale of any specific interest rates and credit quality requirements will also affect
security or commodity. Due to, among other things, the the cash flow of real estate companies and their ability to
volatile nature of the markets and the investment areas meet capital needs.
discussed herein, investments may only be suitable for
certain investors. Parties should independently investigate This communication is not an offer of securities for sale in
any investment area or manager, and should consult with the United States, Australia, Canada, Japan or any other
qualified investment, legal, and tax professionals before jurisdiction where to do so would be unlawful. CenterSquare
making any investment. Some information contained herein has not registered, and does not intend to register, any
has been obtained from third party sources and has not portion of the securities referred to herein in any of these
been independently verified by CenterSquare Investment jurisdictions and does not intend to conduct a public offering
Management LLC (“CenterSquare”). CenterSquare makes of securities in any of these jurisdictions.This communication
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developments and characterized by intense competition
2023 REIT Outlook: Poised to Perform 11Definition of Indices
FTSE Nareit All Equity REITs Index (FNER) NCREIF Open End Diversified Core Equity Index
The FTSE Nareit All Equity REITs Index is a free-float The ODCE, short for NCREIF Fund Index - Open End Diversified
adjusted,market capitalization-weighted index of U.S. equity Core Equity (NFI-ODCE), is the first of the NFI-ODCE Fund
REITs. Constituents of the index include all tax-qualified Database products and is an index of investment returns
REITs with more than 50 percent of total assets in qualifying reporting on both a historical and current basis the results of
real estate assets other than mortgages secured by real 36 open-end commingled funds pursuing a core investment
property. strategy, some of which have performance histories dating
back to the 1970s.
FTSE Nareit Equity REITs Index (FNRE)
The FTSE Nareit U.S. Real Estate Index includes all tax- S&P 500® Index (S&P 500)
qualified real estate investment trusts (“REITs”) that are An unmanaged, market capitalization-weighted index of
listed on the New York Stock Exchange, the American Stock 500 stocks of leading large-cap U.S. companies in leading
Exchange and the NASDAQ National Market List. The index industries; gives a broad look at the U.S. equities market
constituents span the commercial real estate space across and those companies’ stock price performance. Market
the US economy and provides investors with exposure index performance is provided by a third-party source
to all investment and property sectors. The performance CenterSquare deems to be reliable (Bloomberg). Indexes
presented is based on total return calculations which adds are unmanaged and have been provided for comparison
the income a stock’s dividend provides to the performance purposes only. No fees or expenses have been reflected.
of the index, and is gross of investment management fees.
Effective December 20, 2010 the ticker for the FTSE Nareit These benchmarks are broad-based indices which are used
U.S. Real Estate Index changed from FNERTR (total return) for illustrative purposes only. The investment activities and
to FNRETR (total return). The old ticker (FNERTR) has been performance of an actual portfolio may be considerably
reassigned to newly established FTSE Nareit All Equity REIT more volatile than these indices and may have material
Index which is similar to the existing benchmark in all regards differences from the performance of any of this index.
except that timber REITS will comprise approximately 7% of
the new index and 0% in the FTSE Nareit Equity Real Estate Russell 1000 Index
Index. The Russell 1000 Index is a stock market index that tracks
the highest-ranking 1,000 stocks in the Russell 3000
FTSE Data disclosure: Source: FTSE International Limited Index, which represent about 93% of the total market
(FTSE) © FTSE 2022. capitalization of that index. As of 31 December 2022, the
stocks of the Russell 1000 Index had a weighted average
FTSE® is a trade mark of the London Stock Exchange Group market capitalization of $381.3 billion and a median market
companies and is used by FTSE under licence. All rights in capitalization of $12.2 billion. As of 8 May 2020, components
the FTSE indices and / or FTSE ratings vest in FTSE and/or its ranged in market capitalization from $1.8 billion to $1.4
licensors. Neither FTSE nor its licensors accept any liability trillion. The index, which was launched on January 1, 1984,
for any errors or omissions in the FTSE indices and / or FTSE is maintained by FTSE Russell, a subsidiary of the London
ratings or underlying data. No further distribution of FTSE Stock Exchange Group.
Data is permitted without FTSE’s express written consent.
Any statement of opinion constitutes only current opinions A direct investment in an index is not possible.
of CenterSquare and its employees, which are subject to
change and which CenterSquare does not undertake to
update.
2023 REIT Outlook: Poised to Perform 12The CenterSquare Cap Rate Methodology
CenterSquare REIT Implied Cap Rates are based on a REITs with portfolios primarily in the Boston, Chicago, LA,
proprietary calculation that divides a company’s reporting NYC, SF, and DC markets; Non-Gateway – REITs without a
net operating income (“NOI”) adjusted for non-recurring presence in the gateway markets.
items by the value of its equity and debt less the value of
non-income producing assets. The figures above are based The REIT ODCE Proxy is a universe of REIT stocks built to
on 4Q22 earnings reported in December 2022. resemble the NCREIF Fund Index – Open End Diversified
Core Equity (NFI-ODCE). The NFI-ODCE, short for NCREIF
The universe of stocks used to aggregate the data Fund Index - Open End Diversified Core Equity, is the first
presented is based on CenterSquare’s coverage universe of of the NCREIF Fund Database products and is an index of
approximately 200 U.S. listed real estate companies. Sector investment returns reporting on both a historical and current
cap rates are market cap weighted. Sectors and market basis the results of 36 open-end commingled funds pursuing
classifications are defined by the following: a core investment strategy, some of which have performance
histories dating back to the 1970s. The REIT ODCE Proxy is
Apartment: REITs that own and manage multifamily proprietary to CenterSquare and uses gateway/infill names
residential rental properties; Industrial: REITs that in apartments, retail, industrial and office, and then weights
own and manage industrial facilities (i.e. warehouses, them according to the ODCE index to create a proxy.
distribution centers); Office – REITs that own and manage
commercial office properties; Retail – REITs that own and Private Market Cap Rates represent the cap rate achievable
manage retail properties (i.e. malls, shopping centers); Hotel in the private market for the property portfolio owned by
– REITs that own and manage lodging properties; Healthcare each company, and are based on estimates produced by
– REITs that own properties used by healthcare service CenterSquare’s investment team informed by various market
tenants (i.e. hospitals, medical office buildings); Gateway – sources including broker estimates.
2023 REIT Outlook: Poised to Perform 13About CenterSquare
Founded in 1987, CenterSquare Investment Management is an independent, employee-owned real asset manager
focused on listed real estate, private real estate equity and private real estate debt investments. As a trusted fiduciary,
our success is firmly rooted in aligning our interests with those of our clients, partners and employees. CenterSquare
is headquartered in suburban Philadelphia, with offices in New York, Los Angeles, London and Singapore. With
approximately $13 billion in assets under management (December 31, 2022), our firm and subsidiaries are proud to
manage investments on behalf of some of the world’s most well-known institutional and private investors.
For more information, please contact:
CenterSquare Investment Management, LLC
630 West Germantown Pike
Suite 300
Plymouth Meeting, PA 19462
contactus@centersquare.com
www.centersquare.com
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