REITs have been under pressure lately as the industry continues to suffer from rising interest rates, increasing the cost of debt and making it difficult for REITs to raise new capital. Given the real estate industry’s bleak outlook, it could be wise to avoid fundamentally weak REITs, Digital Realty Trust, Inc. (DLR) and Alexandria Real Estate Equities, Inc. (ARE).
Before delving deep into the fundamentals of these REITs, let’s first take a closer look at the industry.
Rising interest rates increase REITs’ cost of debt, making it difficult to achieve profitable growth as they need to raise external debt and equity capital from investors to continue their business. The combination of high rates and weak valuations led to a shortage of REIT capital raising in the third quarter of 2022, the lowest level since 2009.
Furthermore, the office real estate market experienced a significant decline in transactions, with only $6.5 billion in sales recorded so far this year. This figure pales in comparison to the previous year’s first-quarter data and represents a…
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