When interest rates rise, income-focused investments feel downward pressure. This is especially true with real estate investment trusts, or REITs. As interest rates have risen significantly so far in 2018, the Dow Jones Equity REIT index has underperformed the S&P 500 by more than 8 percentage points.

While not all REITs are great stocks to buy, this year's underperformance has created some pretty attractive opportunities to get into some of the best real estate stocks at a discount. Here are two in particular that long-term investors should put on their radar now.

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Company (Symbol)

Real Estate Subsector

Recent Share Price

Dividend Yield

Simon Property Group (NYSE:SPG)




Physicians Realty Trust (NYSE:DOC)




Data source: TD Ameritrade. Prices and yields as of 5/15/18

"A" malls are doing quite well

Many U.S. malls are struggling right now. E-commerce headwinds are hurting sales and profits at many mall-based retailers, and once-great mall anchors like Sears and J.C. Penney are struggling to survive.

However, not all malls are in the same category. So-called "A" malls are actually doing quite well. While I wouldn't buy a REIT that invests in "B" or "C" malls right now, I would have no hesitation to add Simon Property Group to my dividend stock portfolio.

The largest REIT of any kind in the market, Simon owns 217 mall properties. The company runs high-end "A" malls -- 5 of the 10 most valuable U.S. malls are in Simon's portfolio -- and also has a dominant leading market share in the outlet retail industry with its Premium Outlets branded properties.

While there's a lot more to Simon's business than I can explain in a couple paragraphs, the short explanation of why Simon is doing so well while so many U.S. malls are struggling is that the company has done a fantastic job of adapting to the changing retail environment. Simon's properties generally have modern amenities (free Wi-Fi, valet parking, etc.) and an abundance of modern dining options.

More recently, the company has been emphasizing experiential destinations, such as fitness centers and amusement-oriented businesses. And, Simon is gradually orienting its properties as "live, work, stay, and play" destinations, incorporating other types of properties like hotels, office buildings, and apartments into its shopping malls. The idea is that doing so will keep a natural, steady source of foot traffic. After all, what's a better way to make brick-and-mortar retail more convenient than e-commerce than to put it right where people are working and living?

Finally, Simon is turning some of retail's biggest headwinds into its best opportunities by redeveloping closed department stores into new, exciting destinations. For example, the company converted a former J.C. Penney location into a hotel and several specialty retail and dining options.

Because of retail headwinds, Simon trades for a rock-bottom valuation of just 12.9 times its expected 2018 FFO, so now can be a great time to take advantage.

A long-tailed growth opportunity

Healthcare real estate has lots of growth potential over the coming decades, and Physicians Realty Trust is a unique way to take advantage of this long-tailed opportunity.

In a nutshell, the U.S. population is aging -- fast. The 65-and-older age group is expected to roughly double by 2050, and the older segments are growing even faster.

Older Americans use healthcare facilities more and spend more money when they do. For example, the average person in the 65-84 age bracket spends nearly four times as much on healthcare as the average American in the 19-44 age group.

Physicians Realty Trust is a somewhat smaller REIT (less than 6% the size of Simon) that owns 265 properties, almost all of which are medical offices. The company's approach has two unique characteristics. First, Physicians Realty Trust's management has extensive relationships with physicians, hospitals, and health systems, which gives it a big advantage when shopping for deals -- especially off-market investment opportunities. And second, Physicians Realty Trust targets mid-priced opportunities that the larger players in the sector often overlook.

The company is well-diversified, with the 10 largest tenants accounting for just 27.4% of rental income. The portfolio has an impressive 96.6% occupancy rate, and more than half of the company's tenants have investment-grade credit ratings themselves. And, Physicians Realty Trust has a solid balance sheet, with debt making up just 35% of its total asset value.

As a final point, in addition to the long-tailed market growth potential, there's also lots of room to grow with the existing inventory of properties. Less than 15% of healthcare properties are REIT-owned, so there's a big investable universe of properties of which Physicians Realty Trust could take advantage.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.