Tags: REITs | rates | interest | sell-off

REITs Rocket Higher This Year, Making Them Vulnerable to Sell-Off

By    |   Wednesday, 25 June 2014 01:25 PM

Real estate investment trusts (REITs) have soared this year, with the FTSE Nareit All REIT Index returning 15.6 percent so far this year, compared with 6.5 percent for the S&P 500.

But be careful, experts tell The Wall Street Journal. REITs may be headed for a stumble if interest rates rise.

"You need to be a bit cautious," Scott Crowe, manager of the Resource Real Estate Diversified Income Fund, told the paper. "I don't think the market's particularly cheap."

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This year's surge in REITs stems largely from the decline in interest rates. The 10-year Treasury yield stood at 2.54 percent Wednesday morning, down from 3.04 percent Dec. 31, 2013.

REITs trade at approximately 18 times adjusted funds from operations, which is a commonly used measure to value REITs, according to Green Street Advisors. That compares with an average of 15 over the last two decades.

"REITs are still a little expensive versus stocks," Jason Moore, an analyst with Green Street, told The Journal. To be sure, "versus bonds, they look cheap," he said.

Ladenburg Thalmann analysts Daniel Donlan and John Massocca write in Barron's that they are "fearful investor sentiment towards . . . REITs in general could start to wane if the U.S. economy begins to show signs of more robust growth on the horizon."

Still, they remain bullish on Gramercy Property Trust, Stag Industrial, Spirit Realty Capital, EPR Properties and W.P. Carey.

Editor’s Note: Retire 10 Years Earlier With These 4 Stocks

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InvestingAnalysis
Real estate investment trusts (REITs) have soared this year, with the FTSE Nareit All REIT Index returning 15.6 percent so far this year, compared with 6.5 percent for the S&P 500.
REITs, rates, interest, sell-off
272
2014-25-25
Wednesday, 25 June 2014 01:25 PM
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