Does the REIT Stock Run Still Have Legs?

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June 5 (Bloomberg) -- American Century Investments Senior Vice President and Senior Portfolio Manager Steven Brown previews today's markets and discusses his investment ideas with Betty Liu on Bloomberg Television's “In The Loop.” (Source: Bloomberg)

I want to bring in stephen brown.

His call, bond market signal the u.s. is in a slow recovery.

How do i know you are not just talking your book up?

The book is doing a lot of talking itself.

It is of 18% this year.

It has done well this year for a couple of reasons.

One is, fundamentals, but also support from the bond market.

Taking both sides -- number one, the fundamentals are good.

They are not great.

I don't get why reit are ripping.

I think fundamentals are better than good.

We have a lack of supply goes up we have less than one percent growth of new growth.

Economic growth may be getting better, but we have a supply and demand growth of less than two, real estate fundamentals are very good.

Supply and demand is excellent.

And that is exactly right, though.

The bond markets are saying that the economy is ok.

It is a recovery, but not a strong recovery.

That is ok for you, because interest rates on like they will go up anytime soon.

There has been a rally in the first five months of this year.

It has increased the level of demand for income producing assets such as real estate.

What the bond market is saying is, economic growth may be closer to two percent than three percent.

My that -- while that may be at pretty invest -- that what -- that may be disappointing for equity investors, it is attractive for real estate.

There are several reasons you have put them in your portfolio.

One of them focuses on california.

Matt miller has been looking at kilroy.

It makes me wonder if everyone learned lessons from the last real estate bubble.

They are spending a lot of money.

They just spent mended $5 million -- spent $95 million in one area.

If you look at commercial rent, this is sort of to your point.

They have gone up and up and up.

But at some point they've got to come down.

You cannot move in a straight line for ever.

They have a debt-to-equity ratio of about 100%. they are making operating income of about 1.4 times that.

If there's a drop in the market and the tech industry does not forever go on paying on -- paying more and more money for rent in san francisco, are they ready for that?

With kilroy, they are based in l.a. and have a big development pipeline in greater san francisco.

It is supposed to come online and start generating rent, let's say, june 30 of this year, through all of 2015. it is about $1.5 billion in real estate as you mentioned.

We expect the interest rates to be about 1.70%. that is very good.

The risk is pretty much out of the story.

They have pre-leased a lot of their product.

It will start coming online very soon.

In the balance here is the capital.

Both the debt and equity markets are wide open for a company like kilroy.

But when you say pre-leasted, that might be good for now or the next year or so.

Is there some sort of bubble that may be forming, as matt points out, that could be there night couple of years -- be there in a couple of years?

That is missing question.

The tech sector has shot up a lot in the last three years.

The leases are long-term leases.

How long?

Five to seven years.

Ok.

and they have to have cash on their balance sheet.

I don't know or stock prices are going to go to will stop i do know the leases are long-term and their credit tenants.

There is still much more demand than supply in real estate in california.

And you also like hotel groups.

Marriott is one of those groups.

Alix steel, you have more on marriott.

The biggest concern right now is the weakening trend of rent part growth, that is, revenue per available room.

That has concern over the cycle, and the key would be declined.

Over in china, austerity may curb the luxury market.

There are a lot of what it's there.

Marriott has done well this year.

What is going on is -- two things.

One is, rent part israel store -- is still strong.

And two, in the marriott story, what we are seeing from the big operators and particularly marriott is a recovery of group events, business events, tradeshows, etc.

Group revenues are up four percent to six percent.

That is exciting.

In terms of exposure to china or overseas, marriott is a major operator of hotels, but they are active.

They don't own that many hotels, but they have the right to manage and franchise them.

They have very little capital in these hotels overseas.

They just pick up management and franchise fees.

Stephen brown, portfolio manager at american century real estate fund on the call.

Coming up, details about allegations of foul play in the tar pots --qatar's bid to host

This text has been automatically generated. It may not be 100% accurate.

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