When Will REITs Be Normal Again?
By the tickerspy.com Staff
On Wednesday August 5, 2009, 10:28 am EDT
Was yesterday's run in REITs a last hurrah, or is there continued upside in the sector as an equity play?
In July, we highlighted real estate investment trusts (REITs) as a top place to earn big dividends. While this remains the case -- three REIT Indexes can still be found among the top-10 tickerspy Indexes by yield -- the soaring value of the investment vehicles themselves is weighing on their traditional appeal as a pure dividend play. There is no doubt that these stocks were beaten down severely during the recession, as they suffered from the negativity surrounding stocks as well as the crumbling residential real estate market. So, it should be no surprise that they staged a significant rally upon signs of life in both markets. However, there is much more to REITs than residential properties, and The Wall Street Journal warned yesterday that the commercial real estate bottom could be much farther down.
Over the last month, all seven of tickerspy's REIT Indexes are up by 18% or more. Yesterday, the laggard of the group was up by 3.7%, while the top Index had average gains of 10%.
If there is one real estate market to get excited about, it seems to be residential. Pending home sales were up 6.7% year over year in June - their fifth straight month of sequential increases, according to the National Association of Realtors. Meanwhile, new home sales made an 11% jump from May to June. There is a steady, albeit slow, stream of positive housing data that suggests the residential market may have bottomed. Still, the Residential REITs Index is lagging all of its peers on a monthly basis, up only 16%.
Nine of the Residential REITs Index's components have shot up by 20% or more in the last month. Equity Residential (NYSE: EQR - News) is up by 20% in the last week, trailed by Apartment Investment and Management Co. (NYSE: AIV - News) and Camden Property Trust (NYSE: CPT - News) with over 15% gains.
The Journal noted Green Street Advisors' top picks in the REIT sector. Avalonbay Communities (NYSE: AVB - News) was the lone Residential REIT noted, while Liberty Property Trust (NYSE: LRY - News) and Simon Property Group (NYSE: SPG - News) are represented in the Office REITs Index and Retail REITs Index respectively.
Simon Properties, which operates regional malls, outlet centers, and other properties around the world, is up by 24% over the last month. Its top performing peers include Lexington Realty Trust (NYSE: LXP - News) and Entertainment Properties Trust (NYSE: EPR - News). Both stocks are up by more than 45% over the period.
The Office REITs Index is the top performer over the last month, up a massive 27%. Aside from Government Properties Income Trust (NYSE: GOV - News) and Maguire Properties (NYSE: MPG - News), every component of the Index is ahead by over 20% in the period. Green Street's pick Liberty Property Trust is leading the group, up 40% over the last month.
As of this writing, three REIT Indexes are among the top-20 performing tickerspy Indexes over the last month. Investors should keep an eye on them moving forward, as the real estate market remains in an uncertain state despite data pointing to bright spots.
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