Previously, REITs have weakened in anticipation that the Fed hike rates, which would cut into potential revenue for the real estate companies.
“Interest rates undoubtedly will rise at some point, and higher interest rates remain the REIT sector’s greatest potential headwind,” according to Morningstar analyst Robert Goldsborough. “As rates rise, REITs’ interest payments go up, which means REITs have less cash flow available for dividends for equity investors. As a result, higher rates mean greater interest expense. Not surprisingly, REITs with lots of debt and higher levels of near-term maturities – which would need to be refinanced – will fare worse than REITs with less debt and long-dated maturity schedules.”
Vanguard REIT ETF
For more information on real estates investment trusts, visit our REITs category.
Max Chen contributed to this article.