Seniors Housing Weekly Update - REIT Shares Under Pressure Again

May 5, 2015

May 5, 2015. 60 Seconds with Steve Monroe.

Rising interest rates are sending health care REIT shares down, but will it last?

REIT Shares Under Pressure Again

The timing could not be worse. What am I talking about? The recent rise in interest rates and its impact on REIT share values, not to mention looming acquisitions. The 10-year Treasury rate hit a low of 1.65% in February, which most people did not think was sustainable. It has now risen by a third, or 55 basis points, to 2.20%. That is a huge percentage change in rates, even though still quite low from an historical perspective and much lower than the jump in the spring of 2013 that sent REIT share prices plunging by 25%, which was a big overreaction. Easy for me to say.

But with the recent rise in rates, health care REIT shares have dropped by 7% to 13% just since the end of the first quarter. What are bond investors worried about? Oil going over $60 a barrel for the first time this year and threats of inflation rearing its ugly head. Really? A year ago we were all jumping for joy at $60 a barrel. All of this may begin to impact REIT pricing in the acquisition market, especially if the short end of the market rises as well. A higher borrowing cost plus lower equity values should mean lower deal prices. But these temporary fluctuations didn’t seem to have much of an impact in the past, so why should they now? Or is it different?

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