Brexit Impact: ‘Uncertainty’ and a Positive for REITs

That continued low interest rate environment will be a positive for US real estate investment trusts, according to analyst Rich Moore with RBC Capital Markets. "The industry could outperform the overall market by 100+ basis points today as investors seek security and stable cash flows," Moore wrote in a note to clients Friday morning.

Moore gives high marks to the outlook for health care, net lease, office and multifamily REITs in view of the Brexit vote, albeit for different reasons. For healthcare and net lease, it's the effect of low rates, while office REITs could reap the benefits of employer exodus from the UK and Europe and apartment trusts should benefit from "a potential increase in domestic employment." Conversely, lodging and industrial are expected to see negative impacts from the Brexit fallout, Moore wrote Friday.

That being said, one net lease REIT with UK exposure, New York City-based Gramercy Property Trust, sought to assure investors Friday. "Gramercy owns an 80% interest in three high quality logistics assets in the United Kingdom as well as a 50,000-square-foot office facility in Coventry, England," according to a company statement. "All of these assets are owned without leverage. Gramercy, as previously stated and in line with the company's disposition plan, plans to dispose of all of these assets over the next 12 months."

Longer term, Hovland sees "global contagion" as the wild card in the Brexit aftermath. "A downgrade in the UK's credit rating by the S&P, which is very likely, could tip the country into recession," he says. "The rest of the globe is also barely growing, and a financial shock could diminish confidence in the central banks and send much of the world into contraction."

(Check out all of ThinkAdvisor's news and analysis on Brexit.)