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Dividends Help REITs Outpace Market in January

02/02/2012 | By Matthew Bechard

The FTSE NAREIT All REITs Total Returns Index climbed nearly 6.5 percent in January. REITs bested the S&P 500 by two percentage points for the month.

In a video interview with REIT.com, Brad Case, senior vice president of research and industry information, discussed the REIT market's performance in the first month of the year. Case attributed part of REITs' outperformance to strong relative dividend yields.

"One of the big differences between REITs and the total returns of the stock market is that so much of the returns come from income and dividends," Case said. "Investors are looking for dividend yields and investments that will provide them with the income they need to pay their expenses. Certainly, investors are very happy with the dividends they get from their REIT investments."

In terms of share-price appreciation, Case noted that an estimated $100 billion in debt on real estate assets are coming due during 2012. Most of these debts were assumed at the peak of the market in 2007 by investors other than REITs, according to Case.

"Many of those investment managers are going to have trouble repaying those debts," he said. "REITs, because they have a competitive advantage in terms of access to capital, are in a position to buy those properties at good prices. So, I think investors are looking forward to the prospects of increasing earnings, not just from the improvement in the economy, but also from the fact that REITs can buy properties at good prices."

As fears of even more economic turbulence continue to subside, the outlook is starting to brighten up in the lodging sector. The sector gained 10.9 percent in January.

"I think that's a pretty good illustration of what I was just talking about the easing of concerns about, the economic recovery," Case said. "When investors have a lot of concerns about the strength of the recovery and about whether we might go into another recession, lodging REITs tend to suffer in that kind of situation, because investors aren't sure if they're going to be able to fill their rooms with vacation travelers or business travelers."