Real estate investment trusts (REITs) have enjoyed a strong run-up in the past five years, and many financial market participants are focusing on the timing of the first Federal Reserve interest rate hike.
So have REITs peaked, and is it time to ditch them? No, analysts tell
The Wall Street Journal. But they recommend focusing on blue-chip REITs with manageable debt loads, such as Equity Residential and AvalonBay Communities.
They offer healthy dividends of more than 3 percent and are expected to weather rate increases better than their less-financially sound brethren.
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The FTSE NAREIT All REIT Index has returned 14.9 percent so far this year, compared with 10.4 percent for the S&P 500.
Some market participants expect that strength to continue as long as the Fed doesn't move too quickly on rates.
"REITs have demonstrated that they have performed well in environments when the Fed has gradually raised interest rates," Kevin Mahn, chief investment officer at Hennion & Walsh Asset Management, told The Journal.
Edward Turville, manager of the REMS Real Estate Value Opportunity fund, tells
USA Today that the REIT rally looks less scary when you consider that the FTSE NAREIT Index returned only 3.2 percent last year. He sees REITs as fairly valued now.
"It's mid-cycle economics for real estate," Turville explains. "You have high occupancy rates that are getting tighter, and rents rising in every type of real estate, and a supply of new, unleased assets coming on at a rate that's not catching up with demand."
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