MetLife Downplays Concerns Over Commercial Real Estate Holdings

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(Bloomberg) — MetLife Inc., the biggest US life insurer, downplayed concerns about the faltering commercial real estate market amid signs that occupancy is starting to recover.

The company is seeing employers “start to revert back to some level of in-office,” giving a boost to the outlook, Chief Financial Officer John McCallion said Tuesday at an investment conference sponsored by Goldman Sachs Group Inc. “Overall, we think quality will win out in every class in real estate.” 

Higher interest rates have helped life insurers, making it easier to hit investment goals and fulfill promises they’ve made to policyholders in the years ahead. Chief Executive Officer Michel Khalaf told the conference that MetLife is among the beneficiaries, with rising rates driving higher demand for fixed-rate products.

Nevertheless, the stock has struggled this year, with a minus 7.8% total return through Monday that trailed the S&P 500 and financial sector benchmarks by wide margins. Third-quarter profit fell by more than half amid a setback from derivatives and a slump in premiums, fees and other revenue. The shares were down fractionally at midday in New York.

Khalaf said MetLife’s priority is on internal growth, so any potential acquisition would have to fit into the company’s existing strategy with no “non-core elements.” Failing that, excess capital will be returned to shareholders in dividends and buybacks, he said. At current levels, the payout yields about 3.2% annually.

One concern for investors has been MetLife’s commercial real estate investments, including mortgages tied to office buildings. In the banking industry, regulators are closely scrutinizing lenders that have heavy exposure to commercial property as defaults pile up.

Capital is still “scarce” in the sector, McCallion said. But he said MetLife expects this year’s maturities will be resolved without additional losses.

MetLife has an “ample cushion in the event of asset markdowns” on real estate, according to an October assessment by Bloomberg Intelligence. “Also, MetLife holds a long track record of well-regarded real estate management,” analyst David Havens wrote in the report.  

Alternatives such as private equity also have been under pressure, and based on early fourth-quarter statements that McCallion is seeing, the trend is “a little lower” than the third quarter.

(Updates with CFO comment in the second paragraph.)

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