The share of high net worth investors who own Real Estate Investment Trusts, or REITs, has grown in the past four years, according to a Millionaire Corner study on investment product ownership among wealthy Americans.
More than one-third (36 percent) of the high net worth were invested in REITs at the end of 2012, compared to 31 percent in 2008, according to research fielded over the fourth quarter. High net worth investors have $5 million up to $25 million, not including the value of their primary residence. Over the same period, the share of high net worth investors owning their primary home or a second home has also declined, while investment in undeveloped land is up slightly.
REITs are pooled investments offering exposure to commercial real estate sectors and the potential for steady income. The trusts are exempt from corporate taxes, but must return 90 percent of income to shareholders in the form of taxable dividends.
REITs have outperformed the broader market every year since 2008, according to the National Association of Real Estate Investment Trusts, or NAREIT, a Washington, DC-based industry association. In 2012 U.S. REITs had a 20 percent total return, while the S&P gained 16 percent, according to NAREIT, which predicts returns will remain competitive in 2013.
The trusts will continue to benefit from economic growth, job creation, higher occupancy rates and low interest rates, among other factors, according to Brad Case, senior vice president of research and industry information. Rising interest rates would lower the outlook for REITS.
Industrial REITs returned more than 31 percent in 2012, while the retail sector returned 26.74 percent, according to NAREIT. The timber sector returned more than 37 percent, and infrastructure REITs yielded nearly 30 percent. An earlier analysis from NAREIT suggests that REITs can play a role in helping moderate to conservative investors diversify their portfolios away from traditional stock, bonds and cash.