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REITs decline as rate hike concerns fuel sell-off

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REITs decline as rate hike concerns fuel sell-off
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In the week ending September 22, Real Estate Investment Trusts (REITs) experienced a decline due to concerns over an impending rate hike. This sell-off had a particularly significant impact on certain subsectors within the industry.

While the Federal Reserve kept rates unchanged, a majority of officials still anticipate one more interest rate increase in 2023. These rate hike concerns triggered a sell-off, leading to a 4.8% drop on the debut day of the newly launched VanEck Office and Commercial REIT ETF (NYSEARCA:DESK), as reported by Reuters.

The office subsector suffered the largest decline, with a 9.48% decrease from the previous week. W.P. Carey (WPC), a diversified REIT, announced its plans to exit the office sector by selling more than half of its office properties and spinning off the remaining assets as a separate publicly traded REIT. As a result, the company’s stock value decreased by 9.65% over the week.

The diversified subsector also experienced a significant drop, falling by 9.04% on a weekly basis. In contrast, the specialty and healthcare subsectors saw the least decline.

Fitch Ratings stated in a report that although the government’s proposed minimum nursing home staffing standards are expected to increase operating costs and put pressure on margins for nursing centers, they are unlikely to impact the ratings of healthcare REITs.

Jefferies analyst Joe Dickstein upgraded Sabra Health Care REIT (SBRA), citing “significant upside potential” in the company’s senior housing operating portfolio. The analyst also initiated coverage of CareTrust (CTRE), which invests in skilled nursing and senior housing properties, with a Buy rating.

All subsectors witnessed a decline this week, causing the FTSE Nareit All Equity REITs index to drop by 5.48% and the Dow Jones Equity All REIT Total Return Index to fall by 5.39%.

The FTSE NAREIT Mortgage REITs index experienced a 4.55% decrease, while the broader real estate index decreased by 6.03%.

By comparison, the S&P 500 declined by 2.93% week-over-week.

Here is a breakdown of subsector performance: