Real-estate investment trusts are scrambling to take
advantage of investor demand for their high dividends by raising money in
financial markets. REITs have raised $12.25 billion through initial public
offerings, convertible-bond offerings and follow-on offerings this year through
Thursday, according to Dealogic. That is more than 3½ times the money that the
group raised in the same period last year, though it is slightly below the
money raised in that period in 2013.
REITs, which own properties such as commercial office
buildings, residential apartments or warehouses, must pay out at least 90% of
their taxable income to shareholders. This
flood of issuance has been well-received by investors, despite the record-high
stock prices and the looming threat of rising interest rates, which could
lessen the lure of the dividends paid by REITs by making bonds more attractive.
REITs are the beneficiary of investors’ appetite for high
returns at a time of persistently low interest rates both in the U.S. and
abroad. Much of the demand for their offerings has come from investors who have
put money into specialized REIT funds, who are then snapping up the newly
In 2014, a record $12.4 billion flowed into U.S. real-estate
mutual funds and exchange-traded funds, according to Morningstar. For the first
two months of 2015, REIT funds took in $1.8 billion more.
This year has had a number of large REIT deals, including a
$2.5 billion follow-on offering and $1.4 billion convertible-bond offering by American
Tower Corp. Also selling shares earlier this year in deals that
raised nearly $2.8 billion combined were Health Care REIT Inc. and NorthStar
Realty Finance Corp.
But, after a blockbuster 2014, some investors are wary that
if the Federal Reserve starts raising rates later this year, REITs’ stock
prices might suffer. In 2014, the FTSE Nareit Equity REITs Index returned
32.3%, including dividends, topping the S&P 500’s 14% return. For this year
through Wednesday, the total return for the REIT index is 4.9%, compared to
2.4% for the S&P.
REIT shares appear to have gotten a reprieve on Wednesday as
the Fed signaled a more dovish approach to raising interest rates than
investors had expected, suggesting demand for income-generating stocks won’t
wane anytime soon. On Wednesday, the REIT index jumped 2.1%.
The heavy demand for new shares has led investors to pay a
premium for additional stock offered by companies, a shift from the usual
dynamic of companies selling new blocks of stock below their current share
price. Fund managers say demand for the new shares has been supported by a
positive outlook for REITs’ businesses beyond the ups and downs of bond yields.
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