COMMENTARY | COLUMNISTS | GEORGE CHAMBERLIN
Money Matters

Worst appears over for REITs

Like many other interest rate-sensitive sectors in the stock and bond market, real estate investment trusts went through a tough patch in the third quarter. The persistent fear of a Federal Reserve increase in short-term rates sent share prices tumbling.

But, it appears the worst is over.

According to the National Association of Real Estate Investment Trusts (NAREIT), the 223 publicly traded equity and mortgage REITs saw a rebound in prices during September after a series of declining months.

Equity REITs, which own and operate real estate assets ranging from apartments to hotels to shopping centers and other properties, rose 2.13 percent in September compared to a 2.47 percent decline in the S&P 500 stock index.

The attraction to REITs for many investors is the dividend yield currently averaging 4.44 percent, well above the 2.1 percent return on the 10-year U.S. Treasury note.

Like bonds and other dividend-paying stocks, the possibility of rising interest rates often causes a decline in market value. Jitters caused by the mere mention of rising interest rates date back to 2013 when then Federal Reserve Board chairman Ben Bernanke warned there may be a pullback in Fed stimulus.

The result caused what was called a "taper tantrum." The Vanguard REIT exchange traded fund dropped almost 16 percent in just a few days.

Although things looked scary at the time, some analysts saw an opportunity.

"In hindsight, we should have seen what was coming after Bernanke's suggestion. The economy was reshaping itself nicely and the signal from the Fed served as a barometer of sorts. As a value investor, these are the kinds of opportunities I look for," said Brad Thomas, publisher of the online newsletter, "The Intelligent REIT Investor."

However, despite the recent rebound in REIT share prices, some companies feel the current market values do not represent the true worth of a company. As a result, many REITs are seeking out strategic alternatives.

BioMed Realty Trust, a San Diego-based REIT owning properties in the life science industry, announced on Thursday it will be acquired by Blackstone Real Estate Partners in a deal valued at $8 billion.

"We believe that the public markets are not adequately valuing our assets and proven business model. Entering into this transaction with Blackstone fulfills our board of director's mission to maximize stockholder value," said BioMed CEO Alan Gold.

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