Real Estate Investment Trusts (REITS) could see an end to good times as rising interest rates start to pressure bottom lines and shrink dividend payments, according to a Bedford Report analysis.
REITS have profited from the lower interest rate environment, earning money on the spread between low interest short-term borrowing and purchasing high-interest long-term securities.
As the Federal Reserve moves to the end of its $600 billion Treasury bond-buying program in June, market analysts said it's likely to also increase interest rates in a bid to curb inflation from getting out of control.
Higher interest rates would reduce borrowing. "High yielding REITs must pay out 90 percent of their taxable income in dividends," according to the report. "With the risk of higher interest rates potentially shrinking profits in the industry, making dividend payouts could become more volatile."