Lede

Real estate investment trusts (REITs) are under pressure as investors worry that dividend-paying REITs could be squeezed by tenants, lenders, or both due to the recent banking crisis.

Summary

• REITs have fallen by nearly 10% in March due to concerns about tenant risk and financial system stability.
• Office REITs, which rent out office spaces and amenities to businesses, have seen their stock valuations drop by an average of 24% during the month, making it the worst-performing industry in the sector.
• Real estate stocks more broadly have suffered over the past year, falling by nearly 26% from one year ago as higher interest rates increased companies’ funding costs and cut into earnings.
• The recent banking crisis has raised fresh concerns about REITs’ funds from operations and their ability to roll over looming debt maturities.
• Investors now view REITs as one of the next areas where pressures could mount, as bank failures lead lenders to become more conservative in providing loans, which in turn could mean that struggling businesses will find it even more difficult to meet their financial obligations.
• Turmoil in one area of the economy, such as the banking industry, can have knock-on effects on other areas, including REITs.
• Companies that were doing well from easy money may go bust, putting pressure on their landlords who are REITs.
• REITs differ from traditional stocks in that they pay out at least 90% of their income to investors in the form of dividends, making them an attractive play for income-focused investors.