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REIT Tries to Win Back the Little Guy
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At the end of 2009, more than 80% of REIT shares were held by institutional investors and company insiders, according to an analysis by research firm FactSet Research Systems Inc. While individual, or retail, ownership of REITs ticked up slightly in 2009, many in the industry worry that legions of small investors will begin selling again.
A real estate investment trust (REIT) is a real estate company that offers common shares to the public. In this way, an REIT stock is similar to any other stock that represents ownership in an operating business. Many REIT investors are long-term.
The reason for diminished interest in REITs among individual investors can be summed up in two words: volatility and dividends. For years, REITs paid hefty cash dividends, with the annual yield averaging 7.4% from 1990 to 2002. By the end of 2009, the yield was 3.7%.
In the mid-2000s, many REITs goosed profits by boosting leverage and pursuing risky development strategies and private-equity-style joint ventures. That strategy led to more stock-price volatility by increasing REITs' exposure to the economy and the credit markets.
To be sure, many individual investors now get exposure to REITs through mutual funds rather than by buying the stocks directly. Investors who stuck with REITs last year were rewarded. The Dow Jones Equity All REIT Index more than doubled from March to December 2009 as debt-burdened companies were able to access billions of dollars in fresh capital. The index posted a total return of 28.5% in 2009. Some REIT executives are hoping that stock returns will encourage individual investors to return in greater numbers.
In order to become an investor, a property owner must receive a real estate
appraisal from either a licensed
appraiser or have a REIT executive calculate the property’s market value. This will determine the starting value of the property, the yearly returns and depreciation.
Small time business investors receive appraisals on their property while invested to make sure they are getting the proper returns and not receiving unfair depreciation charges.
For REITs, winning back more individual investors could mean turning back the clock when the dividends were stable and the rewards were great. REIT executives are hoping that stock returns will encourage individual investors to return in greater numbers. |
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