Going for gold: REITs double investor inflow compared to precious metals
Real Estate Investment Trust performance is continuing to grow more attractive to retail investors. Early this month, Barclays Capital said REIT expectations are outperforming and TrimTabs Investment Research reports that real estate funds received 2.2% of assets in past month -- more than double inflow of 1% of assets into precious metals funds. However, despite the popularity inherent in record gold prices, "commercial real estate is a lot more popular than precious metals with individual investors," a research note from TrimTabs states. "We hear lots of chatter about a potential bubble in precious metals — negative real interest rates notwithstanding — but we hear almost nothing about a potential bubble in REITs," the note adds. A blog post yesterday in Seeking Alpha points to REITs with relatively low yields as a reason to be bearish on the trusts. "Current REIT yields don't look sufficient to compensate investors for the risks being assumed," according to Henry Schacht, head of Schacht Value Investors. "In short, there is no margin of safety. Given the nature of real estate, is a 6% yield enough? How about 3%?" Today's REIT outlook from Barclays Capital reported a busy week of equity offerings where inflows from U.S.-based REIT funds (including ETFs) for the week ending September 22 totaled $312.6 million. Excluding ETFs, there were inflows of $93.9 million. As of September 23, the NAREIT Equity dividend yield was 3.82% versus the 10-year Treasury yield of 2.56%; the spread widened to 127 bps from 95 bps last week. The analysts state that REITs took advantage of their strong share price performance of late — and solid investor demand — and raised $1.7 billion of equity capital this week. This amount included almost $1.5 billion raised in seven follow-on offerings, in addition to $270 million raised by CoreSite Realty Corporation in the sixth REIT IPO of 2010. The seven follow-on offerings were as follows: CommonWealth REIT ($200.6 million); Health Care REIT ($366.0 million); Alexandria Real Estate Equities ($358.4 million); Winthrop Realty Trust ($61.3 million); BioMed Realty Trust ($262.5 million); Realty Income Corporation ($180.0 million); and Washington Real Estate Investment Trust ($49.0 million). In each case, the offering was upsized from the initially proposed deal size, indicating that investor demand was strong throughout. In addition to looking at metals and REITs, private equity is also investing more heavily in other markets. According to analytics firm Mergermarket, the mergers and acquisition market appears to be stabilizing as financing markets begin to improve and long-anticipated regulatory reforms are finally put into place. The first half of this year saw 1,701 deals worth $362.3 billion, with volume remaining virtually stable compared to the previous half-year and value increasing by 8.7%. Deal flow was strongest in the telecommunications, media and technology sector, which accounts for nearly one-fifth of total deal volume at 19.5%, followed by the mainstay business services and industrials sectors that represent 14.5% and 14.1% of total volume, respectively. Write to Jacob Gaffney.