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No. of Recommendations: 28
REITs' late Earnings Season has been quite good, with very few misses, many "beats" and higher guidance. Our space markets are doing well and supply, while increasing, is still at manageable levels in the vast majority of markets. And cap rates are flat to even declining a bit, while there is a ton of capital looking for investments in CRE.

And yet the stocks have been struggling since late January. From their peak on Jan 26, through Friday, the RMZ is down by 9.0% (while the S&P during that time is off just 3.4%).

I think there is little question that what's been ailing REITs is the fears of rising interest rates and bond yields (don't forget what happened to REIT stocks from May through December 2013). The 10-year Treasury was at 1.83% on Jan 26, and rose to 2.28% on May 13 before coming down hard, to 2.14% late last week.

We can trot out all kinds of statistics showing that REITs don't always underperform in rising rate environments (in fact, they have underperformed about half the time when that happens), and I can point out that rising rates usually mean a stronger economy, which benefits CRE owners. But, as long as hedgies and short-term traders like to sell and/or short REITs during such periods, our stocks will get hurt.

As for me, I keep a very close eye on space markets and cap rates, and when REIT stocks fall as they have, I buy more (realizing that I will get a lot of egg on my face for a while, especially if rates keep going up). But the US economy isn't exactly accelerating this year, and so rising rates - no matter what the Fed does or does not - isn't something that keeps me awake at night (I have my dogs for that!).

Ralph
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