Government bonds have been falling since May, and thus
long-term interest rates have continued to creep higher.
Is this a creepy development for leading real estate
REITs need to take on a lot of debt in order to invest in
malls, nursing home facilities and large-scale housing units.
More debt on the balance sheet normally means more interest
expense on the income statement.
A run through the fundamentals and price action of stocks
making IBD's seven REIT Leaders (as of Friday's IBD) shows that a
rising interest-rate environment hasn't sent institutions
screaming for the exits. However, some stocks are trading much
further below their 52-week highs than the market itself.
ConsiderOmega Healthcare Investors (
) andAssociated Estates Realty (
). Their 2012 long-term debt-to-equity ratios stood at 180% and
178% respectively, the two highest within the group of seven.
Omega has definitely cooled off since the U.S. 10-year bond yield
started climbing in early May. It's struggling to hold above the
40-week moving average and is more than 20% off its high. Yet
Associated Estates is steadily working on the right side of a
long base and is just 16% off its high.
Ryman Hospitality (
) has a 106% LTD-to-equity ratio, yet the stock is trading
Public Storage (
), whose LTD-to-equity ratio is the lowest in the group at 6%,
let its October breakout gains slip away. It's back near the
bottom of its prior saucerlike base that began in May.
Omega's interest expense is substantial. In the first nine
months of 2013, Omega paid $75.1 million in interest, up 6% vs. a
year ago. That interest amount was more than six times the
company's general and administrative expense. Total operating
costs grew 16% to $115 million. In October alone, Omega made $33
million in new investments, including an assisted-living facility