By A.D. Pruitt
Real estate stocks sold off sharply again Thursday as investors
fretted that the end of the era of low interest rates looms
ahead.
Remarks Wednesday by U.S. Federal Reserve Chairman Ben Bernanke
and minutes from the Fed's recent policy meeting suggested the Fed
might start pulling back on its quantitative easing program, which
fuels historically low interest rates and drives a cross section of
investors into real estate investment trusts for higher yields. As
such, an end to quantitative easing could damp demand for REITs,
analysts say.
The total return of the Dow Jones Equity All REIT Index, which
tracks 137 REITs, is down 4% from Tuesday's closing. The S&P
500 index is down 1% during that span.
Among the individual REITs posting the steepest losses in recent
trading are warehouse landlord Prologis (PLD), which declined 2.5%
to $42.40. Healthcare Realty Trust (HR) lost 2.7% to $27.77 and
Regency Centers Corp. (REG), a strip mall landlord, lost 2% to
$54.72.
"REITs took a hit because they are the direct beneficiaries of
the [quantitative easing] policy as people search for yield....and
provide investors with earnings growth and dividend growth," says
Alexander Goldfarb, an analyst at Sandler O'Neill + Partners.
Indeed, REITs still sport the some of the highest dividend
yields among financial stocks. The sector's dividend yield is
currently 3.18%, according to the Dow Jones Equity All Index,
compared to a 2% dividend yield for the S&P 500 Index.
REITs in the first quarter enjoyed their best performance since
the first quarter of 2012, but the REIT sector underperformed the
broader stock market as investors developed a greater appetite for
risk.
The Dow Jones Equity All REIT Index, delivered a total return,
including dividends, of 7.9% for the first quarter. Meanwhile, the
S&P 500 index and Dow Jones Industrial Average gained 10.6% and
11.93%, respectively, in the quarter.
Please write to angela.pruitt@wsj.com