The REIT goes wrong

The U.S. real estate investment trusts are in trouble. The takeovers and the property values are reducing. At the same time higher borrowing costs is taking it’s toll on REIT.

REIT stock have always performed well during the last few years.  They performed better than the Standard & Poor’s 500 index. But this year the scenario may be different. The stock are to decline this year succumbing to the pressure.

In  general, the REITs have 25-40 percent higher value than the bonds and stocks. As the cash flow yield is too low, so the return on these REITs will be low. Banks and investors selling their loans and bonds which are backed by commercial and subprime mortgages. As a result, the home and commercial property values are going down. The result will be lower REIT prices and return.

The Bloomberg REIT index once returned 78 percent in the last two years. But after that the index has shown a decline of 16.5 percent. This is because of the increasing commercial mortgage rate.

The REIT in other parts of the world is also showing decline. The 40-company Tokyo Stock Exchange REIT index and the 14-member Bloomberg Europe Real Estate index is also declining.

The only group in the index that is showing gain is the Warehouse and industrial REITs. It has recorded a 11.5 percent gain. This depends on the imports of raw materials and consumer products. As the import increased, so the group returns increased.

Decline
Public storage REITs - 19 percent
Apartment REITs  - 13 percent and
office stocks -12 percent