The threat of higher rates ahead has kept REIT shares in check so far in 2015. Nevertheless, investors should not run from REITs because fundamentals in the sector remain robust, said Wilson Magee, portfolio manager for the Franklin Real Estate Securities Fund. ‘I think the earnings are going to come through really nicely,’ said Magee. ‘Wall Street analysts expect 6% to 8% earnings growth this year with similar growth next year. The headwind will be rising long term bond yields.’ The iShares US Real Estate ETF (IYR) which tracks publicly traded REITs is down 3.7% year-to-date. The Franklin Real Estate Securities Fund is down 1.6% so far this year. Magee said apartments, lodging and self-storage will be the fastest growing sectors from an earnings perspective. One of his top picks in the lodging arena is Bethesda, Maryland-based Pebblebrook Hotel Trust, down 2.5% year-to-date, primarily due to his high regard for the company’s management team. ‘We think they are excellent,’ said Magee. ‘It’s a smaller capital base so we think they will deliver very good growth off that capital base and of course the lodging fundamentals are quite strong in the United States right now.’ Magee is also bullish on lab-space operator Alexandria Real Estate Equities, which is up 4% in 2015 due to its association with the super-hot biotech sector.
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