The Real Deal Miami

SEC determines future for profitable mortgage REITs

September 14, 2011 11:00AM

Nine real estate investment trusts have filed to sell approximately $2.5 billion in shares since the beginning of the year, the most significant volume of deals since 2009, the Wall Street Journal reported, and the sales aren’t over yet. A $600 million offering from Pacific Investment Management and a $500 million deal by a unit of hedge fund Fortress Investment Group are both slated for the coming months.

Once one of the most desirable commodities on the stock market, reviews by the Securities and Exchange Commission could turn the tide for REITS, meaning they’ll me less likely to go public in the future.

The SEC is distinguishing between REITs that manage and operate real estate and those that invest in real estate securities, the Journal said. If the SEC decides that mortgage REITs should be more tightly regulated, the companies will lose their freedom to use hefty amounts of leverage, which had previously allowed them to produce high dividend yields — 15 percent for 2011 so far, compared with 3.8 percent for the overall REIT market.

For mortgage REITs planning to go public, the SEC scrutiny “will be a very tough sell,” said Scott Sweet, managing director of research firm IPOBoutique.com. “If IPO investors know that the REIT structure could change down the road, they will likely stand clear of new IPOs.” [WSJ]