Good run for REITs: Is it over?

NEW YORK – After a long hot run, real estate investment trusts have cooled off in the past few weeks.

Real estate investment trusts (REITs) trade like stocks, but act like real estate moguls, buying up properties. Sometimes a REIT focuses on a region, such as the Northeast, sometimes on an asset class, such as apartments, hotels or office buildings, and sometimes they do a combination.

Over the past three years, prices for U.S. REITs have appreciated nearly 55 percent, or 15.7 percent a year, according to Prudential Financial. Average annual dividends paid by the REITs were about 7 percent.

So far this year, their performance is less astounding, but still better than the rest of the stock market.

As is often the case with any investment, especially one that’s performed spectacularly, the professionals disagree about what’s next for REITs.

The case against REITs is simple: The prices are too darn high.

“It’s time to take profits,” said David Darst, chief investment strategist of Morgan Stanley’s Individual Investor Group.

The case for REITs is more nuanced.

“They’re not as cheap as they were years ago – that’s an understatement,” said Don Cassidy, senior research analyst at Lipper Inc. But, he said, “they still have a place for investors.”