The 10 biggest REITs in the United States all delivered stock appreciation over the past year, and nine delivered double-digit increases. Considering that REITs aren’t designed for stock appreciation — they're designed for dividend yield — this is a clear indication that something is off with the broader market. A market that moves in only one direction is unhealthy; it indicates that an external factor is skewing results. In this case, blame prolonged record-low interest rates. (For more, see Key Tips for Investing in REITs.)

When rates increase, the stock market will have to stand by itself, which will be difficult because the repayment of debts will be more expensive for many companies that borrowed cheap money. This leads to stock depreciation across the board, which then leads to reduced consumer spending and deflation.

All of this impacts REITs. While all REITs are likely to take a hit, some will present excellent buying opportunities, especially since you will be collecting relatively generous dividend yields in the meantime. (For more, read: Residential, Healthcare and Office REITS.)

Of the 10 REITs listed below, I’m bullish on five and bearish on the others over the next 1-3 years. But first, know this: due to current economic conditions, today isn't an ideal time to invest in any of these REITs. It’s likely—though not guaranteed—that you will see much better entry points by the end of the year. (For more, read: Top 10 REITs for 2015.)

All numbers below as of April 13, 2015.

Public Storage

Self-storage isn’t an industry that will take a big hit when reality sets in. Most people who have their items in storage keep them there, simply because they have nowhere else to place them.

Public Storage (PSA) has shown consistent top- and bottom-line growth over the past three fiscal years (all numbers in thousands):

Public Storage

FY2012

FY2013

FY2014

Revenue

$1,842,504 

$1,981,746     

$2,195,404

Net Income

$939,258 

$1,052,453

$1,144,204

(Source: Yahoo Finance)

Other important metrics:

Dividend Yield

2.80%

Short Position

1.80%

Debt-to-Equity Ratio

0.07

Operational Cash Flow (ttm)

$1.61 Billion

(Source: Yahoo Finance)

PSA would suffer a temporary hit if the market tanked, but its underlying numbers are strong.

Health Care REIT

Baby boomers are retiring at a rate of 10,000 per day. This doesn’t mean they will go straight to a senior living facility; the majority will enjoy retired life for a decade or two before a nursing home becomes a thought. However, it’s always best to get in before something becomes a trend.

Health Care REIT, Inc. (HCN) has shown consistent top-line growth over the past three fiscal years, and it has been steady on the bottom line (all numbers in thousands):

Health Care REIT

FY2012

FY2013

FY2014

Revenue

$1,765,979  

$2,847,945     

$3,305,879 

Net Income

$298,030 

$145,959     

$502,595

Other important metrics:

Dividend Yield

4.20%

Short Position

4.60%

Debt-to-Equity Ratio

0.80

Operational Cash Flow (ttm)

$1.14 Billion

Equity Residential

Equity Residential (EQR) acquires, develops, and manages multifamily properties. Key word: multifamily. If the economy isn’t on the right track, then it’s only a matter of time before the stock market catches up. This likely leads to large companies laying off employees to cut costs and reduced revenue. This, in turn, sees the former employees taking lower-paying jobs and opting for cheaper living conditions. In this scenario, EQR would still take a hit because it wouldn’t be seen as a flight to safety, but in reality, it would present an excellent value.

Equity Residential has shown consistent top-line growth over the past three fiscal years, and it has remained comfortably profitable (all numbers in thousands):

Equity Residential

FY2012

FY2013

FY2014

Revenue

$1,747,502 

$2,387,702 

$2,614,748

Net Income

$841,719

$1,830,613 

$631,308     

Other important metrics:

Dividend Yield

2.80%

Short Position

N/A

Debt-to-Equity Ratio

0.97

Operational Cash Flow (ttm)

$1.32 Billion

Ventas

Ventas, Inc. (VTR) invests in hospitals, skilled nursing facilities, senior housing facilities, and medical office buildings. It’s also riding current trends, like aging baby boomers.

Ventas has shown consistent growth on the top and bottom lines over the past three fiscal years (all numbers in thousands):

Ventas

FY2012

FY2013

FY2014

Revenue

$2,468,509  

$2,809,405

$3,071,479     

Net Income

$361,775 

$454,889 

$477,186 

Other important metrics:

Dividend Yield

3.10%

Short Position

3.60%

Debt-to-Equity Ratio

1.22

Operational Cash Flow (ttm)

$1.25 Billion

AvalonBay Communities

AvalonBay Communities Inc. (AVB) develops, redevelops, acquires, owns and operates multifamily communities.

AvalonBay has delivered consistent top-line growth over the past three fiscal years, and it has been steady on the bottom line (all numbers in thousands):

Avalon Bay

FY2012

FY2013

FY2014

Revenue

$1,000,627

$1,462,921 

$1,685,061

Net Income

$423,562 

$352,771     

$697,327 

Other key metrics:

Dividend Yield

2.90%

Short Position

3%

Debt-to-Equity Ratio

0.72

Operational Cash Flow

$886.64 Million

Think Twice on These

Making a call against the biggest REIT, Simon Property Group Inc. (SPG), isn’t a popular thing to do. But this group relies on shopping malls, which are mostly out of favor with Americans these days. When retailers suffer, so does Simon Property Group, and the near future isn’t likely to present an environment that leads to strong consumer spending. There's also its debt-to-equity ratio of 3.49, which isn’t appealing, and taking on this risk for a 2.80% yield doesn’t add up to an ideal investment. Fortunately, Simon Property Group also relies on premium outlets, which have been performing well. 

General Growth Properties Inc. (GGP) owns, manages, leases, and redevelops high-quality regional malls, placing it in a similar situation as Simon Property Group, but it doesn't have the favorable outlets segment for any help. Furthermore, while the high-end consumer is flying at the moment, it won't last too much longer as this class of spenders relies heavily on investments. General Growth Properties has a debt-to-equity ratio of 2.03, and it offers a 2.30% yield. I see this is a very high-risk investment.

Prologis, Inc. (PLD) owns, develops, manages, and leases industrial distribution and retail properties. Prologis has strong fundamentals, including a debt-to-equity ratio of just 0.62 while offering a generous yield of 3.30%. This is an industry-based bearish call; it’s not specific to Prologis.

Boston Properties Inc. (BXP) owns and operates offices in Boston, Washington, New York, San Francisco, and Princeton, N.J. It sports a debt-to-equity ratio of 1.26 while offering a 1.90% yield. Just like Prologis, this bearish call is industry-specific.

Vornado Realty Trust (VNO) invests in commercial real estate. Vornado Realty has a debt-to-equity ratio of 1.27 while offering a 2.30% yield. A pure real estate play like this isn’t likely to perform well in a deflationary environment.

The Bottom Line

The information above is only to be seen as a starting point. It shouldn't be taken as investment advice. In my opinion, all REITs will take a hit when deflation becomes a reality, but this should present a buying opportunity in the higher-quality names. And it’s not always a matter of quality. In some cases, it relates to industry trends. (For related reading, see: Promising ETFs for 2015.)

Dan Moskowitz does not have any positions in any of the aforementioned names.

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