REALTOR® Magazine-Daily News-REITs Fell in 2nd Quarter, Still Outperform Dow

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Daily Real Estate News | July 3, 2008 | REITs Fell in 2nd Quarter, Still Outperform Dow
The Dow Jones Equity All REIT Total Return index fell 4.9 percent in the second quarter versus a gain of 1.4 percent in the first three months of this year.

REITs (real estate investment trusts), which outperformed the Standard & Poor's 500-stock index in that first quarter, lagged behind the following three months with that broader index down 2.7 percent on a total-return basis.

Still, REITs did manage to outperform the Dow Jones Industrial Average's total return, which fell 6.85 percent in the April-through-June period. According to various analysts, REITs fell victim in the last three months to broader market concerns, such as the growing trouble in the financial sector.

Real estate requires substantial capital to build, purchase and maintain assets. As a result, the industry is substantially more dependent on bank lending than other industries are.

To this end, when banks scale back their lending, property firms face a more difficult challenge to expand and deliver investors returns. Green Street Advisors' Jim Sullivan notes, "For REITs, [the pullback in lending] stretches their balance sheets, hurts their earnings and negatively affects commercial real-estate values."

Hotel REITs saw the biggest stock decline at 14.9 percent, mainly in response to moves by airlines to cut flights. Retail strip-center REITs, meanwhile fell 10.3 percent thanks to such factors as weaker housing growth and scarce financing.

The top-performing category, posting a 4.6 percent increase, was a miscellaneous grouping that includes timberland REITs Plum Creek Timber Co. and Rayonier Inc., among others. Next were REITs specializing in hybrid office-industrial buildings, up 3.6 percent.

Source: Wall Street Journal, Kris Hudson (07/02/08)

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