Why are REITs falling so dramatically in the past few days?

[hendi_alex]

I think that a single rental property can be used as a simple model for most REITS. If the rental income covers loan payment, expenses, taxes, and insurance, then the property generates free cash flow. High interest rates make the rental property less attractive as the easy, risk free income from CDs becomes a more attractive choice. If financing costs rise, that also takes away from the free cash flow generated. While most REITs will likely survive a period of rising rates, their stocks will be less attractive compared to risk free alternatives and as financing costs increase, free cash flow will be affected for most of the REITs. Most likely spreads will continue to be favorable for some time, but when rates move closer to historic norms, the sector will bleed some serious red. To me that risk is modest in the near future, but the direction is shifting from favorable to less favorable. To me, that means lighter weight, proceed with caution. My current sentiment remains 10% weighting, but with any hint of inflationary pressure will probably reduce to 5% weighting. Won't consider overweight untill interest rates seem to be peaking, which is probably many quarters into the future.