There are a number of regulatory impediments that prevent REITs from becoming growth instruments.
One such impediment is the rule that REITs would need to distribute 90% of rental income as dividends for investors to remain tax-advantaged instruments.
As REITs can only retain 10% of their rental collections, their primary instrument of growth will likely be via finding better properties to acquire and, each time they do so, they would need to raise money from shareholders or financial institutions through a private placement or rights issue.
Of late, we are seeing some REITs experience so much yield compression that they are starting to produce lower yields than banks.
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