By A.D. Pruitt | The Wall Street Journal
Real-estate investment trust stocks had their worst quarter in nearly two years, as investors worried that rising interest rates could derail the commercial real-estate recovery.
The big question now is: What’s next?
If rates climb even higher, REITs will have to pay more to borrow money, and their dividends will look less attractive to investors compared with the other high-yielding investments.
But some analysts believe that REIT investors may have overreacted to rising interest rates by dumping the stocks. Indeed, they point out, since June 24, REITs have outperformed the broader market as investors have returned to the sector.
Most analysts still believe REITs will return 11% to 15% this year, including dividends and stock gains, because the economy will keep expanding, though not fast enough to trigger a spike in interest rates.
“We still think the REITs are attractive in that environment,” said Jeung Hyun, a portfolio manager at Adelante Capital Management.
