REITs rally in Trump era despite climbing interest rates

Sector continues to lag behind broader market
January 24, 2017 05:12PM

From left: Marc Holliday, 625 Madison Avenue, Steven Roth and One Penn Plaza

Despite rising interest rates, U.S. real estate investment trusts are enjoying some upward momentum in the Donald Trump era.

REIT shares have climbed 5.8 percent since interest rates started rising after Election Day as investors expect looser regulations and economic growth, the Wall Street Journal reported.

Office-centric REITs such as SL Green Realty TRData LogoTINY and Vornado Realty Trust have seen shares rise in particular as new policies out of Washington are expected to spur jobs.

Net-lease REITs typically feel the pinch most when interest rates rise, but they’ve bounced back after a short period of uneasiness when the 10-year Treasury yield climbed to 2.6 percent in December.

Shares of the largest net-lease REIT by market capitalization, Realty Income Inc., have climbed 3 percent since Election Day.

Publicly traded REITs trimmed their debt levels from 58 percent of total book-assets ratio in early 2009 to 49 percent this past September, according to the National Association of Real Estate Investment Trusts.

Still, some are skeptical and think the surge is going to be short-lived. Shares of REITs have lagged in the Dow Jones Industrial Average, which is up 8.4 percent since Election Day.

And policies like Trump’s proposed border and trade policies could negatively impact the retail industry.

“We think overall it’s going to be a choppy year for REITs,” said James Sullivan, managing director at BTIG Equity Research. [WSJ]Rich Bockmann