The search for yield has been one of the big drivers of REITs so far in 2012, according to Sam Wald, portfolio manager with Fidelity Investments.
In an interview with REIT.com on June 11 during REITWeek 2012: NAREIT's Investor Forum at the New York Hilton, Wald pointed out that the average REIT dividend yield has been in the range of 3 percent to 4 percent.
“The dividend payout ratios are very low, meaning that dividends are very safe,” he said. “Also, we feel that dividends should grow from here as earnings recover through the cycle.”
Wald said one of the big surprises has been that same store net operating income (SSNOI) growth has been fairly healthy, despite the muted economic growth. He added that the real estate supply is at a historically low level.
“At those levels, it doesn’t require a very high hurdle for economic growth for the companies to grow nicely,” he said. “We also feel that this limited supply growth should be a positive backdrop to the overall cycle.”
In terms of the dominant themes in the second half of the year, Wald cited the uncertainty surrounding Europe and the fiscal situation in the United States.
“Unfortunately, it seems that some of the macroeconomic drivers that caused the risk-on, risk-off market over the past four or five years seem to be re-emerging. Even though those did not have a direct impact on the basic local stable business of collecting rents on properties, they can impact the availability and cost of funds,” Wald said. As a result, he added, people would be willing to pay lower multiples on the cash flow of properties and, therefore, lower multiples on the cash flow of REITs.