Zacks: Stimulus End Rumors Hurting Net-Leased REITs

A report from Zacks.com said that the rumors of the Federal Reserve ending its stimulus program and the resulting rise in mortgage rates have impacted net-leased real estate investment trusts. These REITs own free-standing buildings leased on a long-term basis to tenants who have the wherewithal to withstand volatility in the marketplace.

REITs that specialize in health care properties tend to specialize in this structure.

Zacks said from early 2012 through the middle of May, these net-leased REITs had a spurt in their stock prices, in the range of 57% to 103%. But with interest rates starting to rise, these stocks fell by 11% to 18.5%.

It explained that with the fear (and in the last few weeks the reality) of rising interest rates, “investors tend to leave capital-sensitive net-leased REITs and part their money instead on other avenues that promise comparatively higher yields.”

As for the future, Zacks spoke of the “inherent strength of net-leased REITs,” noting that some people are of the opinion that these company’s stocks are down but not out yet, and that they are still trading a premium to net-asset values. “Only time will tell whether such investor confidence is justifiable or not,” Zacks said.