REITs fall hard as investors fear rising interest rates

Real estate investments fall most since September after strong jobs report renews speculation of first half rate hike

Feb 7, 2015 @ 1:12 pm

By Bloomberg News

U.S. real estate investment trusts fell the most since September after a strong employment report renewed speculation that the Federal Reserve will boost interest rates in the first half of this year.

The 166-company Bloomberg REIT index fell 2.8% Friday, the biggest drop since Sept. 12. Owners of single-tenant buildings and health-care real estate led the decline.

A Labor Department report showing the biggest job gains in 17 years sent Treasury yields surging Friday on expectations of higher interest rates. Rising rates make it more expensive for REITs to borrow money, which may hurt their ability to buy property and develop real estate. Higher Treasury yields also reduce the appeal of the stocks' dividend yields.

“As the spread narrows, REITs look a little less attractive than Treasuries,” said David Auerbach, an institutional REIT trader at Esposito Securities in Dallas.

The 10-year Treasury yield rose to 1.96% from 1.82% Friday. The dividend yield on the Bloomberg REIT index is about 3.4%.

The Bloomberg single-tenant REIT index sank 4.2% Friday, while the health-care REIT gauge fell 4.1%. Those types of landlords tend to be viewed as bond-like investments because they typically have tenants with long leases.

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