Real-estate stocks are poised to end 2010 with gains that are twice as large as the broader stock market, the second year in a row that REITs outperformed the major stock indexes.
REITs, as measured by the Dow Jones All REIT index, were up 27% as of Tuesday’s close. While that is a smaller gain than last year, when REITs posted gains of 28.5%, the 2010 results handily beat the Dow Jones Industrial Averages, up 11% as of Monday’s closing and Standard & Poor’s 500 index, up 12.86%.
The REIT rally was triggered by investors hunting for higher dividend yields. REIT dividend yields, while low compared to historical standards, are currently around 4% compared to 3.35% on Treasury bonds.
“The REIT yields are very attractive compared to anything else in the market,” said Brad Case, vice president of research and industry information for the National Association of Real Estate Investment Trusts. Since the beginning of the year, dozens of REITs have raised dividends, an about-face from last year when many REITs were cutting or suspending dividends.
Other investors were buying real-estate stocks based on economic fundamentals, basically a belief that commercial landlords will post stronger earnings from rising rents and occupancy in 2011.
Most of this year’s gains came early in the year after a number of REITs were able to successfully recapitalize their companies by selling large amounts of stock and bonds. The recapitalizations eased fears that a number of large companies would be forced into bankruptcy. By the fourth quarter, however, REITs failed to outperform the broader indexes as investors began to fret that stubbornly high unemployment might drag down the industry’s prospects and delay the time when landlords can raise rents. The DJ All REIT index was up 7.2% for the fourth quarter through Tuesday’s close, almost in a dead heat with the 7.3% return for the Dow Jones Industrial Average and modestly trailing a 10.28% gain for the S&P 500.
Written by A.D. Pruitt for The Wall Street Journal, Published December 29, 2010
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