REITs are securities that trade like a stock and invest in real estate directly through property ownership or mortgages. Consequently, revenue are mainly generated through rents or interest on mortgage loans. To qualify for special tax considerations, the asset also distributes the majority of income, about 90% of taxable profits, to investors as dividends.
“Although it is difficult to know for sure, I believe there is reason to be optimistic about REITs with commercial real estate holdings — even in the face of rising interest rates. US developers continue to see robust demand and are locking in rates at levels that remain low from a historical perspective. In turn, higher demand may help keep pushing prices higher, and the lower rates secured today can help keep REIT borrowing costs from rising too steeply — a combination that can provide a boost to REIT cash flows,” notes PowerShares.
For more information on real estate investment trusts, visit our REITs category.