The Guide To REIT Investing In A Rising Rate Environment

When investors find themselves in a rising rate environment, one of the areas that often becomes an avoid for most is the REIT sector. This segment tends to benefit from low interest rates, and its high yields can sometimes become less attractive relative to safer bonds as interest rates increase across the board.

However, it is really such a good idea to exclude a whole market sector just because rates may be on the rise? This week’s guest for the Dutram Report, Scott Crowe, the Chief Investment Strategist at CenterSquare Investment Management, doesn’t think that approach is a good plan for investors, and offers up a game plan for the sector in this uncertain time.

Which REITs are the Best Now?

In today’s podcast, Scott discusses which areas of the REIT world he thinks are well-positioned for a rising rate world, focusing in part on companies with short-term lease structures. These can more easily raise rents than those with longer dated contacts, making them less impacted by a rising rate world. This includes companies like CubeSmart (CUBE) which focuses on self-storage facilities, but pays out a robust yield in excess of 4% to investors.

We also talk about some growth areas in the world of real estate investment trusts, which could be interesting options for those seeking a bit more exposure outside of the retail space. While Crowe dives deep into these trends in the podcast, he takes a closer look at the health care and data center REIT spaces in more detail, offering up investors some solid reasons for why these are areas to watch right now.

As some samples of this trend, we have CyrusOne (CONE) which pays out a three percent yield while owning and operating enterprise-class data centers. And for the health care side, investors can look to firms like Omega Healthcare (OHI) which pays a seven percent yield while investing in long-term care facilities (among other healthcare-focused assets). But these are just examples, Scott goes over in the podcast which areas he thinks are the most promising in the REIT market right now, and which are best positioned to take advantage of changing market trends.

We also discuss two funds where Crowe’s CenterSquare is the sub-advisor, the Dreyfus Global Real Estate Securities Fund (DRLIX) and the AMG Managers CenterSquare Real Estate Fund (MRESX). These funds offer up investors diversified exposure to the REIT market, and we talk about what makes these products tick.

In addition to diving into the international exposure and some of the strategies for finding top REITs, we also talk about some modest holdings in retail-linked names like Simon Property Group (NYSE:SPG) or Prologis (PLD) for these funds, and what the sector breakdown is for both of the products going forward. But check out the podcast for additional information on these funds, the REIT market, and some key growth areas to watch no matter what happens to interest rates in the near future.

Bottom Line

But what do you think about the rising rate environment and the possible impact on REITs? Make sure to write us in at podcast @ zacks.com or find me on Twitter @EricDutram to give us your thoughts on this, or anything else in the fund market.

But for more news and discussion regarding the world of investing, make sure to be on the lookout for the next edition of the Dutram Report (each and every Thursday!) and check out the many other great Zacks podcasts as well!

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