REITs: The Safe Investment

Once again real-estate stocks did better than the overall stock market in the second quarter, which means that investors are continuing to wager on property firms amid the distressed global climate.


Real Estate Investment Trusts (REITs) were up almost 10% in the first half of the year compared to a 6% increase in S&P’s stock index, and just over 8.5% for the Dow Jones Industrial Average-this is on a total return basis. In fact, REITs have been performing exceptionally well over the last two years, returning nearly 30%.

The assumption is that real-estate stocks will suffer less than other financial investments that have been hurt by concerns over the European debt crisis. The nice REIT dividend yields haven’t hurt much either, attracting investors.

Despite gains, analysts are pointing out that REITs aren’t performing when they’re compared with underlying real-estate values. It’s claimed that over an extended period, REITs should perform better than real-estate prices, because REITs may be leveraged by partaking in valuable activities and wisely timed acquisitions. With this being the case, REITs should at least be able to return better than a passive real-estate market.

The perception of this lack of performance is attributed by some to dilutive stock sales that REITs undertook in recent years to parry loan defaults and bankruptcies. Yet, last year REITs raised over $26 billion in equity equaling the largest since 1997; with this amount set to be eclipsed by this year’s performance (over $23 billion has been raised already this year). from stronger sales and expansion by national retailers.

In the long run, REITs offer a number of significant benefits for shareholders, but fluctuations in the short-term must be expected.