Real-estate investment trusts are looking to raise as much money as possible in financial markets in order to take advantage of the booming investor demand this year. Throughout 2015 alone, REITs have raised nearly $12.25 billion, which is 3.5 times more money raised compared to 2014. Already-public companies made up about 80% of this $12.25 billion by selling extra shares. In addition to the companies flourishing from money raised, shareholders are seeing high dividend yields on their investments. As of last week, “the dividend yield on the FTSE Nareit Equity REITs Index was 3.35%, compared to a 1.84% yield on the overall S&P 500 stock index.”
Although this year has been extremely successful regarding REITs, some investors predict poor REIT performance if the Federal Reserve were to raise rates. Last year, REIT indexes returned about 32.2%, including dividends, compared to 14% return for the S&P 500 index. As of last week, REIT indexes returned 4.9% versus 2.4% for the S&P. The REIT market’s direction will most likely mirror the Fed’s decision on interest rates, but many are having a hard time predicting when rates will rise.
Fund managers express that the positive outlook on REITs help support demand for new shares. Brian Jones, a portfolio manager for the Neuberger Berman Real Estate Fund has a positive outlook on the real estate industry. “When REIT investors think about the operating environment for REITs, we see continued strength generally. The fundamental picture for commercial real estate and REITs continues to be attractive.”