The quarterly investment represents a 6.5% increase compared with the previous quarter and an annualized rate of 28.6% for the real estate investment trust industry.
Among those interviewed for the study was Sandy McIntyre, a portfolio manager for Toronto-based Sentry Select Capital Management, which manages $1 billion and increased its stake in REITs by 11.5%. He attributed the growth of institutional investment in REITs to "the real cash flow in the sector as well as the transparency of the financials in the industry. Investors want tangible results."
"Compared to other industries, which have room to manipulate earnings, the REIT financial model is simple, overall much easier to gauge for investors," adds Leo Fields, portfolio manager for Dallas-based Weisberg & Fields. "The transparency of REIT financials is the best it has been since we started investing in the industry."
Still another investor, unnamed by the researchers, attributes the increase to "the relative out-performance of REITs versus the broader market, both recently and over the long term. The 10-year annualized return on REITs beats the S&P 500, with roughly half the volatility," he points out.
"Investors are seeking stocks that can provide an income stream that is unrelated to stock price appreciation, especially in this volatile market," explains James Kropp, portfolio manager at San Diego-based Christopher Weil & Co.
Patrick Beytagh, analyst with Dallas-based Invesco, agrees, saying the REIT sector's dividend yields of "around 7%," represented an "easy acquisition" to satisfy investors' wish to add equity that produced "fairly stable cash flows and earnings."
Some survey participants see clouds on the REIT horizon, however, particularly in respect to office and apartment occupancy rates. "Occupancy trends are still deteriorating," says Carla Norfleet Taylor, an analyst at Chicago-based Kenwood Group. "The dividend payout ratio is more at risk now. However, depending on where you invest within the sector, the dividends make REITs a good investment in this economy."
Saying "a few factors are ganging up on REITs," Derek Warren, research associate at Toronto-based Morguard Financial, listed "higher vacancy rates, layoffs, lower retail pricing and low mortgage rates" among the factors that could begin to stem investors' flow of capital into this market segment.
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