Researcher Says REITs in Good Financial Shape
11/24/2014 | by Sarah Borchersen-Keto

Susan Persin, senior director of research at Trepp, LLC, joined REIT.com for a video interview at REITWorld 2014: NAREIT’s Annual Convention for All Things REIT at the Atlanta Marriott Marquis.

Persin previewed the likely impact of the anticipated rise in interest rates during 2015 on REITs.

REITs are interest rate-sensitive because they distribute most of their earnings and have to finance growth through borrowing, according to Persin. She stressed, though, that in recent years REITs have delevered their balance sheets “quite a bit and are in pretty good shape financially.”

She noted that many of the REITs attending REITWorld 2014 “don’t seem too concerned about increases.” Nevertheless, “investors are on high alert about any interest rate movement,” she added.

“I do think interest rates will continue to weigh on the REIT market, even though it seems that investors shouldn’t be surprised, and it shouldn’t be a shock to the market when it begins to happen,” Persin said.

Persin also highlighted a growing trend among REITs to simplify their portfolios.

“Investors seem to be rewarding management that focuses on core competencies,” Persin said.

At the same time, the definition of core competencies may be shifting, she suggested. Persin pointed to a REITWorld 2014 presentation in which Boston Properties, Inc. (NYSE: BXP) CEO Owen Thomas spoke about how the traditional office REIT is building high-rise apartments in its core markets.

“I do think that many REITs will continue to diversify, spinning off portfolios, selling off portfolios or even individual properties to focus on what they know best. On the other hand, trends shift, and the definition of trends shift,” Persin said.