Real-estate stocks continue to rally, the latest indication the outlook for commercial real estate has improved.
After posting gains that exceeded the broader stock market last year, the stocks of real-estate investment trusts are picking up additional gains this year. The Dow Jones Equity All REIT Price index, which tracks 126 stocks, was up 5.1% as of Tuesday’s close, at 235.17; and the MSCI U.S. REIT price index, which tracks 103 stocks, was up 4.8% to 797. Those were among the highest levels since October 2008, when the financial crisis was taking hold.
In addition to an improving outlook, analysts say REITs are attracting investors because of high dividend yields and a recent spate of stronger-than-expected quarterly earnings.
Simon Property Group Inc., for example, reported this month that its adjusted funds from operations, a key profit measure, rose to $1.80 a share in the fourth quarter, from $1.66 in the prior year’s fourth quarter. That was higher than the $1.74 projected by analysts on Wall Street.
But while REIT performance has improved significantly since hitting bottom in 2009, the indexes remain far below their all-time highs of 1233.66 for the MSCI index and 356.85 for the Dow Jones index, which were established during the height of the market in February 2007. And trading volume remains thin.
“Fundamentals are turning around in most property sectors, but…slowly,” said Mike Kirby,director of research at Green Street Advisors. “We’re very bullish on the price value of commercial property. We think there is further room to run” higher. (credit ad pruitt,wsj)