US REITs: Is It Too Early Of A Call?

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Bloodbath… Pain… Struggle…

These are among the words that describe REIT performance during the first half of 2015. The median performance of the 174 equity REITs that we follow was negative eight percent. Some claim that this is a good time to purchase REIT stocks, but we think it might be too early. The drop was not even across sectors. As we indicated in several articles, the data center subgroup has gone up by a median of 7.3 percent while the shopping centers subgroup has gone down by 12.4 percent — and these were the best and worst sub-sectors during the first half. Interest rates on the ten-year treasuries are up almost 70 base points from February.

RBC Capital has said that, based on the study of five periods of interest rate increases, the course followed by REIT performances has been an expected one. The MSCI US REIT Index (RMZ) underperforms the S&P500 during the three months following the increase, after which, however, they outperform the latter in the next three to twelve months. Year-to-date, the RMZ dropped by 16 percent, and the S&P500 remained almost flat.

Citi believes REITs can deliver ten- to fifteen-percent total returns during the next year, saying there is a disconnect between the private and public markets. As the private market continues to be strong, the drop in the REIT stocks provides a good opportunity for investment.

Blogs and individual investors have placed faith in health care as one of the most promising sub-sectors. Although we acknowledge that more and more baby boomers will become customers of the health care system, we personally believe complex regulations make its case tougher. We will nonetheless dive into this matter during the upcoming months, continuing to monitor it in the meantime. Unfortunately, there is no crystal ball to tell us how things will play out, though we are at a compelling moment in the industry.

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Source: Barron’s


Written by Heli Brecailo

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.​