Real estate investment trusts are, once again, seeking retail investors, in spite of their lower dividends and higher volatility. During the market downturn, the only takers seemed to be institutions, which currently comprise 80% of the owners of REITs. Ten years ago, institutional investors held 40% of all REIT shares.
Advisors of REITs are anxious to attract the $4 trillion in retirement accounts that Baby Boomers will be rolling over in the next few years, Michael Hudgins, a REIT strategist with J.P. Morgan Asset Management, told The Wall Street Journal.
“If they want the steady-eddy type of business model, I truly believe that REITs are going to have to change,” Hudgins said, saying that two things that must happen are higher dividends and a simpler business model.
REITs now pay an average 3.7% dividend yield, down from the 7.4% they delivered in 1990. Further diminishing their appeal, instead of paying out 90% of their income to investors as they were previously required to do, REITs obtained the right to deliver stock instead of cash during the financial crisis.