Investors Cash Out Real Estate Stocks
Shares of real estate investment trusts were pounded Tuesday for a third straight session, as some investors cashed out of a sector that had been soaring for months.
Fear of rising interest rates appeared to be the trigger for the sell-off that began Friday, analysts said.
A Bloomberg News index of 155 REIT shares slumped 4.1% on Tuesday after falling 3.9% on Monday and 1% on Friday.
The index had reached a record high Thursday.
Among REITs, CenterPoint Properties Trust dropped $4.15 to $74.95 on Tuesday, Arden Realty Inc. lost $1.42 to $30.12 and Tanger Factory Outlet Centers Inc. slid $2.97 to $42.19.
REITs are companies that own and operate real estate properties such as office buildings, malls and apartment complexes. The companies pass through most of the income they receive to shareholders in the form of cash dividends, making the stocks attractive to income-seeking investors.
Partly because of their dividends, REITs held up well during Wall Street’s bear market from 2000 through 2002. And they soared last year with the general market rebound.
The Bloomberg REIT index gained 28.1% in 2003. Including dividends, the index’s total return was 36.7% -- compared with 28.7% for the blue-chip Standard & Poor’s 500 index.
REIT shares zoomed again in the first three months of this year. The Bloomberg index jumped 10.8% in the period, not including dividends, while the S&P; rose 1.3%.
But on Friday bond yields began to rocket after the government said the economy created a net 308,000 new jobs in March, the most in nearly four years. That stoked fears that a stronger economy would drive all interest rates higher.
As yields on bonds have risen, the securities have become more significant competition for REITs and other high-yielding stocks, analysts said.
“There’s a contingent of investors looking at REITs as very similar to bonds,” said Bryan Maher, analyst at Credit Lyonnais Securities in New York. “As interest rates go up, the attractiveness of dividends that REITs pay are going to go down.”
Higher interest rates also could make it more difficult for REITs to finance properties.
But many analysts said the intensity of the sell-off reflected that relatively few investors had taken profits in REITs as they have risen in the last year.
“Our take on it all is that it is just a natural correction that’s overdue,” said Jon Fosheim, co-founder of Newport Beach-based Green Street Advisors Inc., a REIT research firm.
David Fick, an analyst at Legg Mason Wood Walker in Baltimore, said many investors “have been waiting for this pullback to come back into the market. We believe that there is a ton of cash sitting on the sidelines right now, waiting to be put to work in REITs.”
