Weighing the Risk of REITs in a Fragile Housing Market

SUSIE GHARIB, NIGHTLY BUSINESS REPORT ANCHOR: Well, paltry bond yields have caused investors to look around for other options. Real estate investment trusts or REITs are viewed by some as a savvy alternative. Suzanne Pratt reports on why the sector is so popular.

SUZANNE PRATT, NIGHTLY BUSINESS REPORT CORRESPONDENT: This may come as a big surprise, but lately, real estate has been a pretty good
investment. We’re not talking about this kind of real estate or shaky U.S.
homebuilders. We’re talking the stocks of real estate investment trusts or
REITs. REITs manage portfolios of commercial properties, including office
buildings, apartments and shopping centers. According to a widely watched
index, REITs returned almost 9 percent last year, more than four times the
broader market. Real estate expert Kevin Lindemann says REITs have done
well because they’re a bet on America’s economic future.

KEVEN LINDEMANN, DIR., REAL ESTATE GROUP, SNL FINANCIAL: Commercial
real estate is impacted by broader economic growth. And as investors are
looking out into the future for where and when the economy is going to
grow, real estate is going to participate in that.

PRATT: And then there are those sexy dividends. REITs are required
by law to return 90 percent of their taxable net income to shareholders.
Right now, REITs yield an average of 3.5 percent and as the economy
improves, those pay-outs could really pick up.

SHEILA MCGRATH, REIT ANALYST, KBW (NYSE:KBW): We had 10 percent
dividend growth in 2011; we’re expecting another year of about 10 percent.
So, positive dividend growth really gives you a better favorable backdrop
versus bonds.

PRATT: Some experts believe investors have already missed much of
the run-up in REITs. But others say the sector can still do well this year,
too. One big reason — the lack of new building in commercial real estate
in the last several years.

LINDEMANN: When demand does pick up for space, the companies that own
buildings today are going to be really well positioned to capture that
demand.

PRATT: REITs may invest in real estate but don’t forget they’re also
stocks. If the job market stagnates or Europe’s debt crisis heats up,
REITs will stall just like the rest of the stock market. Suzanne Pratt,
NIGHTLY BUSINESS REPORT, New York.


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