REITs still attracting investors despite tough economy

Despite the weak economy and the crippling impact it´s had on property rents and occupancy rates, market experts still expect real estate investment trusts to outperform the Standard & Poor´s 500 Index over the next 12 months.

Many analysts are projecting REITs will generate total returns of 7% to 10% over the next year, outpacing the S&P 500´s projected return of 5%. Much of the gains will come from the companies´ dividends.

Currently REIT dividend yields average 7.3%, according to the National Association of Real Estate Investment Trusts. Mortgage REITs boast the highest yields, averaging 13.5%, while hotel REITs offer the lowest yields, at 4.2% on average.

Yet, some investors have become jittery about the safety of the REITs´ dividends as some REITs have announced that they will cut their dividends. It seems that current operating conditions and declining cash flows will force other REITs to seriously consider a dividend cut. Many hotel REITs have already suspended their dividends and REITs in the apartment sector are also at risk of trimming their dividends due to the longer-than-expected market downturn.

'However, REITs with long-term leases and stable, reliable tenants can weather through a tough environment with limited impact on cash flows. REITs are not fast-growth. They´re not exciting, but they´re still a sound investment', according to one analyst.

(source: Dow Jones Newswires)

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