Sector Snap: Real estate investment trusts

Analyst: REITs likely to underperform broader market on rising Treasury rate uncertainty

Associated Press

NEW YORK (AP) -- Real estate investment trusts are likely to continue to underperform the broader market due to uncertainty about rising Treasury rates, an analyst said Wednesday.

Jefferies' Omotayo Okusanya said in a client note that if 10-year Treasury rates go above 3 percent, REITs that concentrate on malls, offices and industrial space would be increasingly vulnerable.

The analyst cut his rating on Tanger Factory Outlet Centers Inc., which specializes in outlet malls, to "Hold" from "Buy." The company's shares fell 35 cents to $32.20.

The analyst added that investors should look for companies that have the ability to reset rents given short lease structures or a strong earnings outlook that is not dependent on having to raise capital.

Okusanya's top picks are Extra Space Storage Inc., CoreSite Realty Corp., Highwoods Properties Inc. and Federal Realty Investment Trust.

Okusanya upgraded Federal Realty and Sabra Health Care REIT Inc. to "Buy" from "Hold," saying that the companies look oversold on rate concerns. Federal Realty's stock declined 9 cents to $100.66. Sabra's stock climbed 51 cents, or 2.3 percent, to $23. Its shares have traded in a 52-week range of $19.54 to $32.40.

Here's a look at how some REITs are faring in Wednesday afternoon trading:

Extra Space Storage fell 5 cents to $44.12.

CoreSite dropped 29 cents to $32.57.

Highwoods declined 41 cents to $35.08.

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