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TheStreet Open House

Time to Focus on Blue-Chip REITs

Stocks in this article: OPSASPGSTAGWSR

NEW YORK ( TheStreet) -- Although the blue lights aren't flashing yet in REIT-land, last week's market reset has created some special buying opportunities for dividend investors, notably the blue-chips.

Bernanke's recent comments sent REITs tumbling as many of the expensive, best-in-class REITs suddenly started to see a "margin of safety" starting to widen.

Uncle Ben (Bernanke) gave us little indication when rates would start to rise, but the mere reference (to rising rates) brought unexpected momentum to the selloff last week.

Some of the big landlords, such as Realty Income (O), Ventas (VTR), Public Storage (PSA) and Simon Property Group (SPG), all dropped into fair-value range.

In addition, Healthcare Trust of America (HTA), Retail Opportunity Investment Corporation (ROIC), Excel Trust (EXL) and Monmouth REIT (MNR) all saw shares slide.

It's clear that interest rates will begin to creep up, and although there is risk in REIT balance sheets -- too much variable-rate debt -- a strengthened economy means jobs are being added, cars are being purchased and stores are filling up.


We are just three years into a recovery of historic proportions, and any increase in interest rates gives meaningful evidence that commercial real estate is getting stronger.

I am concerned about REITs with lower-quality tenants as it's apparent that a rise in debt costs could take a toll on certain rent-payers. For example, I would make certain that your investments are risk-aligned and you're being compensated for the added risk of poor tenant or thin demographic quality.

For example, STAG Industrial (STAG), Whitestone REIT (WSR), and Gladstone Commercial (GOOD) are REITs that own properties in secondary markets with a considerable number of weaker tenants. When interest rates begin to rise, these lower quality tenants will be under more pressure, and that could impact occupancies for these REITs.


Although you will not be able to find them in the bargain basement, the blue-chip REITs are likely to provide safe and reliable dividend income. I especially like the REITs that have demonstrated a long track record of paying and increasing dividends.

By focusing on dividend safety, you'll be able to establish some worthy targets that could enable you to weather the rising interest rate clouds.

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