Rate hikes already priced in
Yellen’s rate hike along with potentially 3 more in 2017 briefly shook up REITs, but based on Friday’s strongly positive reaction, it seems to suggest a consensus that rate hikes have already been priced in to REITs. I do not necessarily read this as an “all clear” signal, but it opens up the plausibility that REITs can perform well in a rising rate environment.
In the meantime, we took advantage of the jostling with some opportunistic trades. An early week purchase of AHT-G was to take advantage of tax loss selling that took the price below a reasonable valuation. Further price movements from the Fed announcement affording recycling this money into some freshly cheap Brixmor.
BRX is and has been a solid REIT with consistently positive SSNOI. Going forward, it has substantial mark-to-market opportunity which should keep SSNOI in the 3%+ range for many years to come. This growth rate is outsized relative to its cheap FFO multiple, so we see room for multiple expansion.
We lowered 2CHYP’s exposure to triple net REITs a bit as these are more susceptible fundamentally to rising rates. The ones remaining in the portfolio are sufficiently high yield that we anticipate reasonable total returns even as rates rise.
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