REITs have a record second quarter: Who saw that coming?

Posted Jul 1st 2009 3:35PM by Zac Bissonnette
Filed under: Industry, Housing

The Wall Street Journal reports (subscription required) that "The Dow Jones Equity All REIT Total Return Index, which tracks 114 publicly traded REIT stocks, rose 28.9% in the April-June period, the biggest quarterly gain for the index since it debuted in 1989."

REITs still have a long, long way to go until they've regained the ground they've lost during the real estate rout -- they were down 31.6% in the first quarter and 38.8% in the fourth quarter of last year.

The rise in REITs is a reflection of the age old truth that the stock market is a leading indicator: The commercial real estate market is still in a state of rapid decline, but investors already knew that. Indications that the decline may not lead to as many bankruptcies as previously thought was enough to help some REITs more than double during one three-month span.

Hotels were the big winner for the quarter, witnessing an astounding gain of 73.8%. Health care -- a sector less tied to the economy -- "lagged" with a gain of just 21.1%. Manufacture homes were the real clunker, eking out upside of just 4.9%.

Is the REIT rally just a dead cat bounce or is it a sign that the worst is over? It's impossible to know. But for most long-term investors, the best REITs will be those with strong balance sheets and no pressing need to refinance large debt piles in a tight credit market.

Tags: inthenews, Real Estate, Real Estate Investment Trusts, RealEstate, RealEstateInvestmentTrusts, REITs