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REIT Fundamentals Improving

Owners of industrial specialty real estate should benefit from the expanding economy, new tax regime, and regulatory relief.

Chris Wimmer: Year to date in 2018, credit spreads of the Morningstar Corporate Bond Index and our REIT Sector Index, with average ratings A- and BBB+, respectively, have widened relative to Treasuries in contrast to 2017, when both indices tightened throughout the year. Year to date, REITs have widened 18 basis points to 123 over Treasuries while the corporate index has widened 19 basis points to 115 over as volatility has picked up and investors expect interest rates to rise further.

From a fundamental perspective, REITs continue to improve balance sheets and credit profiles. When we look forward, key fundamentals we are most focused on include property-level cash flows, or what we like to call net operating income, or NOI.