Seeking Alpha

REITs struggle as rates rise

  • The broad market is quiet today following yesterday's big session, but the equity REIT sector has its eyes focused on rising Treasury yields, particularly in the belly of the curve where the 5-year yield is higher by 10 basis points on the session and all the way up to 1.64% (it was 1.3% at Thanksgiving).
  • Realty Income (O -3.6%), National Retail (NNN -2.4%), Health Care REIT (HCN -3.1%), LTC Properties (LTC -3.6%), Medical Properties (MPW -2.5%), Federal Realty (FRT -1.9%), Retail Opportunity (ROIC -1.1%), Chambers Street (CSG -1.8%).
  • Related ETFs: IYR, VNQ, DRN, URE, SRS, RWR, ICF, SCHH, DRV, KBWY, REK, FRI, FTY, PSR, WREI
Comments (14)
  • VLD
    , contributor
    Comments (63) | Send Message
     
    So if the Fed just said that they will keep interest rates low at least thru much of last year why are REITS falling?
    19 Dec 2013, 01:30 PM Reply Like
  • snoopy44
    , contributor
    Comments (1054) | Send Message
     
    Let's get real. We were told yesterday by the Fed that ZIRP is with us until late 2015 or mid 2016. How many times do these traders need to be told that interest rates are going nowhere? This is nothing but hysterical overeaction to what was a whimper yesterday from the fed.
    19 Dec 2013, 01:42 PM Reply Like
  • thodoris91
    , contributor
    Comments (61) | Send Message
     
    Do you believe in forward guidance?
    19 Dec 2013, 04:30 PM Reply Like
  • NV_GARY
    , contributor
    Comments (4113) | Send Message
     
    Christmas gift to buy O and others.
    19 Dec 2013, 02:14 PM Reply Like
  • retire2014
    , contributor
    Comments (78) | Send Message
     
    Just bought more at $38.06.
    19 Dec 2013, 02:17 PM Reply Like
  • Captain Pike
    , contributor
    Comments (785) | Send Message
     
    Such a moronic mantra. I wonder whoever started this non-existant connection between treasuries and RE Reits. Get over it. RE Reits, the best of class at least (those yielding over 6%), will flourish in the new energy abundant, low inflation growth period that we are about to enter.
    19 Dec 2013, 02:42 PM Reply Like
  • Stormin77
    , contributor
    Comments (50) | Send Message
     
    Buy the Prefered under $25.00 a Share.
    Who needs Price appreciation
    19 Dec 2013, 05:42 PM Reply Like
  • jerrywengler
    , contributor
    Comments (624) | Send Message
     
    I asked my bank officer when the CD rate increase is going to happen. She said there is no indication that it will happen now or in the foreseeable future as far as she can see . Whatever is happening for the big boys, it isn't penetrating through for the locals. The time is here to buy more O plus some of its lesser brethren.
    19 Dec 2013, 09:28 PM Reply Like
  • dieuwer
    , contributor
    Comments (2740) | Send Message
     
    REITs should just crank up the rents.
    20 Dec 2013, 10:21 AM Reply Like
  • Tim Welland
    , contributor
    Comments (203) | Send Message
     
    The main problems with rising rates are:
    1) REITs rely heavily on debt financing and as the rates on this (treasury yield+spread) increase, their cost of capital will as well. Not to mention that the asset values of the REITs' properties are directly inversely related to interest rates, so asset values will fall as well. These two things are connected.
    2) Years of low interest rates have sent yield-seekers into "higher risk" assets, buying dividend-yielding stocks, junk bonds, etc., instead of treasuries. If treasuries go back to yielding 4-5%, you will see a lot of investors bail on stocks and head back to the "safer" assets.
    20 Dec 2013, 11:53 AM Reply Like
  • justaminute
    , contributor
    Comments (1102) | Send Message
     
    This is old news.

     

    You presume yields on Treasuries will go to 4-5%. It will not be permitted for some time. The government simply cannot allow it. Effective management will position accordingly.
    21 Dec 2013, 10:20 PM Reply Like
  • Captain Pike
    , contributor
    Comments (785) | Send Message
     
    The main problem with thinking superficially;
    1) Some well run Reits buy properties with long term fixed rate mortgages, so while expenses stay the same, Income constantly increases, Any new properties financed at higher rates will have higher rents, keeping profits steadily growing. Reit managers are pretty sharp that way and well positioned RE Reits are rock solid.

     

    2) Years of impossible to sustain COMEBACK returns (from the March 09 Crash low) have sent newbies and superficial thinkers into stocks that will soon run out of gas and return to modest gains with no div's. So if you worry about Treasuries @ 5% someday and keep your money in a mattress till then all us Reit investors will be happy to reap 7% div's and modest appreciation until the slow folks realize how things work. Then we'll add better cap appreciation with our div's.
    7 Jan 2014, 06:05 PM Reply Like
  • mudchicken
    , contributor
    Comment (1) | Send Message
     
    The history of O paying dividends and increasing quarterly is very powerful. There have been many large interest swings when they were younger, less diversified and they flourished nonetheless! Don't knee jerk this. You will be sorry. Look at the December period for the last five years. Looks like an annual buying period!!
    21 Dec 2013, 11:04 PM Reply Like
  • STREETRE2
    , contributor
    Comments (199) | Send Message
     
    How did REITS do before the Fed stepped in ?
    25 Dec 2013, 06:51 PM Reply Like
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