atans1

Why owning Reits in a rising interest rate environment may make sense

In Financial competency, Property, Reits on 09/01/2014 at 4:46 am

When ST talks down Reits, as it has been recently, because interest rates are rising, it’s time think again. Remember its big-balls up when Reits were at their (with hindsight) their peak in May last yr?

Here’s some stuff that appeared in reference with US Reits but is applicable here: While REIT investors did an about-face following the Fed’s tapering announcement, some industry experts say all the attention surrounding interest rates and REITs is unfounded. “Ever since May 22, there’s been this discussion about the role of interest rates in REIT returns – and it’s a very strange discussion,” said Brad Case, VP of Research with the National Association of Real Estate Investment Trusts (NAREIT) in a recent interview with CoStar News. “Because the truth is, when interest rates go up, it usually means the economy is strengthening. That’s good news for REITs and means that returns will be strong.” In support of this statement, Case pointed out that REITs have performed well in 12 out of 16 periods of interest rate increases since 1995.

But be prepared that they underperform other types of “shares”

While there is controversy regarding the degree to which interest rates affect REITs, Affleck pointed out that investors need to consider more than just how REITs perform when interest rates change. “The relevant measure is not whether REITs have done well during interest rate increases, but how they performed relative to the broader market,” Affleck said. “On that count, the data are definitive – REIT performance relative to the broad market is inversely related to interest rate movements.” Affleck added that REITs outperformed the broad market – gaining 27% compared to a 20% gain for the S&P 500 – when interest rates fell from 3.5% in March 2011 to 1.5% in April 2013.

Juz take the payouts and bank them. But remember that Reits, unlike shares, pay out most of the income they get.When things go wrong (higher borrowing costs, lower rents), payouts suffer. No buffer, unlike comnpanies dividends. In the worse case, can end up having to subscribe to rights issues because Reits don’t have reserves to draw on in hard times.

Related post: https://atans1.wordpress.com/2011/12/12/primer-on-yields-of-reits-biz-trusts/

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  1. The upcoming global currency reset or currency exchange (C/E) reset
    Q&A On the Global Currency Reset 全球货币复位的问题&答案
    http://thesedonaconnection.wordpress.com/qa-on-the-global-currency-reset/

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