REIT Stocks Rise as Rally Gathers Steam
7/06/11 - Wall Street Journal - A.D. Pruitt
Real-estate Stocks have outperformed the broader stock market for the second quarter in a row. The Dow Jones Equity All REIT Index was up 9.9% for the first half of the year, compared with a 6% rise in the Standard & Poor’s 500-stock Index and 8.6% for the Dow Jones Industrial Average, on a total return basis.
The recent performance caps a two-year period in which REITs have been on a hot streak with nearly 30% in returns. A result of an increased number of investors who assume real-estate stocks will be hurt less than other financial stocks, which have been troubled by repeated concerns about the European debt crisis.
Despite the comparable gains that have been made, some analysts say REITs are still falling short when compared with the underlying real-estate values. According to Green Street, the values for commercial real estate have increased by 5% over the last five years while REITs linger below 20% of what the market had been.
Green Street attributes this underperformance to aggressive, but dilutive, stock sales that some REITs undertook in recent years to fend off possible loan defaults and bankruptcies and as a result, the share prices today haven’t recovered in the same way real-estate prices have recovered.
Paul Adornato, an analyst at BMO Capital Markets, believes REITs offer substantial benefits for institutional and retail shareholders, but because share prices are subject to a much broader financial sector short-term fluctuations are to be expected.
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