Real Estate Investment Trusts (Reits) are feeling the fallout which began when the subprime loan problems affected financial stocks, spread to the homebuilders, and have now found their home with the real estate stocks.
Reits – which are stocks of companies that invest in commercial or residential real estates, such as shopping centers, office buildings and apartment complexes – have fallen into the grip of the subprime woes’ ripple effect as it works its way through various investment classes, perhaps eventually through the broader market. Large Reits such as Simon Property Group (SPG), Federal Realty Investment Trust (FRT), and Boston Properties (BXP) have seen their stock prices plummet in the last twelve months on the order of more than 33%. Boston Properties is down 36% from a year’s high of 123.96 to 79, with Simon and Federal Realty showing similar declines.
Although the Reits do not usually have direct exposure to subprime mortgages, they are deeply tied into the credit markets as they often rely on credit for purchases of additional properties or seek financing through the issuance of debt for improvements or expansion of existing properties. They also are affected by the slowing in the economy which has now reached the retail sector, with consumers expected to spend less at the shopping centers, particularly the high-end ones, owned and operated by many of the Reits.
Reits, which are an equity play on large amounts of real estate, traditionally have behaved much like bond-stock hybrids in the market, paying a relatively high dividend, returning income while offering steady growth. These falling stock prices also coincide with the end of their high-growth run cycle in the last few years.
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