REIT performance shaken by euro woes

The European debt woes prove that not all REITs perform well during hard times, DMG Research said.

In a statement, the analyst said only the industrial and retail REITs—the so-called defensive REITs—managed to remain resilient during the volatile period of August to October 2011, when the market was plagued by concerns on the European debt crisis.

The share price of REITs in both the industrial (-5.4%) and retail space (-2.9%) outperformed REITs in other sectors such as office (-14.5%) and hospitality (-17.1%) during this period.

DMG Research has recommended defensive REITs that focus on the retail and industrial sectors over hospitality and integrated office REITs as its most recent study demonstrated that these sectors are more resilient historically in terms of dividend payout and share price during a volatile market.

“In our study, if we strip out industrial and retail REITs, the REITs in other sectors underperformed the STI by 2.5% when market sentiments were weak,” the analyst said.

DMG Research’s most recent report further revealed that the perception that REITs outperform the general market is baseless, as proven by the shaky performance of the office and hospitality sectors.

“Given an increasingly weak market sentiment, we believe this might be a good time to engage in some profit taking before buying again on weakness; particularly on REITs such CCT and CDL-HT,” DMG Research said.