Investors push record cash into U.S. REITs

September 13, 2011 09:41AM

Seeking the generally higher yields real estate investment trusts produce, investors have poured an additional $3.7 billion into U.S. REIT funds this year, Bloomberg News reported, bringing the total amount of assets in those funds — including exchange-traded funds — to $96 billion, shattering the previous record of $87 billion set in February 2007.

“REITs are attracting attention because of their income, the dividend yield, and the fact that REITs do own hard assets, which offer inflation protection,” said Philip Martin, REIT strategist at research firm Morningstar.

The average annualized dividend growth rate of REITs over the last two decades is 5.75 percent, according to the firm, about twice the rate of inflation. The publicly traded trusts are required to distribute at least 90 percent of their taxable income to investors in annual dividends. This year, the securities have an average yield of 3.7 percent, compared to 1.95 percent for a 10-year Treasury note.

However, real estate investment trusts depend on faith in the future of the economy for yields, the story notes, otherwise demand for commercial and multi-family space dwindles, and income follows. The current growth outlook for real estate is largely dependent on the type of asset, according to a Bloomberg analyst. Currently, Morningstar finds the industry to be trading at a “slight discount” to fair value, but believes multi-family assets are overvalued. [Bloomberg News]