REIT Charts

[MWM]

REITs Getting Quietly Slaughtered
October 5, 2011, 11:40 AM ET
By A.D. Pruitt

Real estate stocks sold off across the board as investors continue to worry the recovery in commercial real estate will be side tracked by global malaise.

Among the biggest losers include apartment operator AvalonBay Communities, which fell 3.49% to $112.91, and shopping centers landord Kimco Realty, which dropped 3% to $14.36.

REITs were the worst performers on the S&P 500 Index, while the broader equities markets were relatively flat.

“It’s a bit unusual for REITs to react this negatively when the broader market is hanging in there,” says Rich Moore, an analyst at RBC Capital Markets.

Jim Sullivan, a managing director of REIT research at Green Street Advisors, said Wednesday’s declines reflect concerns among investors that Europe’s mounting debt crisis could filter down to hurt U.S. credit markets. “The direct impact is minimal, but indirectly, what we’re worried about is the impact on the U.S. banks and how that impacts the availability and cost of capital for real estate borrowers,” he said.

Real-estate stocks have outperformed the broader stock market for much of the past two years but that trend ended during the third quarter. The Dow Jones All Equity REIT Index, which tracks the stock of 130 companies, posted a negative 15% total return during the third quarter, an about-face from the second quarter when the REIT index registered a 2.9% gain.

The third-quarter return was the largest drop since the first quarter of 2009, when the index posted a negative return of 31%, and was the second time since late 2009 that REITs put in a weaker performance than the Standard & Poor’s 500-stock index.