Excerpt from Barron's Weekly Magazine. Receive all our excerpts by signing up here:
New Concept for the Old World by Arindam Nag
Summary: U.S. REITs have attracted billions of dollars while outperforming the S&P for seven years. But U.S. REITs are increasingly merging, offering fewer investor opportunities. Europe's REITs offer a new alternative to U.S. investors as European economic cycles are decoupled from the U.S., and aren't slumping. England, Holland, France, Italy and Germany are all joining the fray: Shares of top FTSE properties companies like British Land, Hammerson and Land Securities rose over 25% since mid-2006 on REIT conversion speculation. FTSE REITs offer 2.4% yields vs. 2.9% in the U.S, and they don't trade at premiums like those in the U.S. Large cap REITs offer value, but their diversity costs them a "conglomerate discount." Better value comes from specialty sector REITs like Brixton, invested in land around London's Heathrow airport. France's Unibail shares rose 300% between 2003-2005, when all 10 top REITs' values went from €11 to €18 billion. German REITs are promising as 75% of German conglomerates own the commercial properties they occupy. Deutsche Telekom (DT), for example, owns €8b worth of investable property. Fidelity International Real Estate Fund manager Steven Buller says the divide between cap gains and rental yields will go from 50-50 (now) to 30-70, as more companies transform themselves to REITs and pay out higher dividends.
Related Links: One way for U.S. investors to play the international REIT market is with the SPDR DJ Wilshire International Real Estate ETF (NYSEARCA:RWX) • Institutional Investors Dumping REITs as Equity Office Deal Pressures Yields • Investing in Indian Real Estate • DJ Wilshire US and International REIT ETFs Not Directly Comparable