The majority of real estate investment trusts (REITs) are expected to post positive earnings for the fourth quarter and fiscal year 2011 as rent growth continues, according to analysts.
REITs, which are required to pay 90% of taxable income to investors each year, have outpaced the broader market, with average annual returns surpassing 10% over the past decade. REITs focus on renting properties -- generally either office, residential, industrial or hotels -- which has partially sheltered them from plunging real estate prices. Most profits are reinvested into building improvements or acquisitions, but the sector also has high yields for investors.
"We think REITs are in a good spot," said Alexander Goldfarb, senior REIT analyst with Sandler O'Neill + Partners. "The current economic environment is conducive to them."
Economic growth has boosted demand from tenants, but hasn't been strong enough to encourage excess development, restraining the amount of empty space on the market. Around a third of proposed development projects are unable to secure financing.
Each subsector of the REIT industry faces different conditions, but analysts see upsides across the industry.