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Shareholders in Real Estate Investment Trusts (REITs) should be prepared to forgo dividends over the next year as trusts are keeping cash in crisis.  According to BMO Capital Markets, almost 30% of all REITs have made changes so that they can suspend, cut or switch to paying part of their dividends in company stock.  Right now they are stocking cash to pay down debt and pump up balance sheets.  Traditionally dividends were the core driver for investing in a REIT which needs to pay at least 90% of their taxable income as quarterly payouts.

These cuts are inline with general market trends, cutting dividends is a big savings to these entities but it’s wreaking havok on their shares.  within the 45 REITs that have cut dividends, their average return is down 30% across the board.  The average decline according to the index during the same time period is running at 26%.

REITs own approximately $600 billion in commercial real estate assets – typically offices, retail or apartments.  Some REITs switching to stock versus dividends are not in crisis mode – they are switching modes to be conservative.

With the freeze in the credit markets affecting the outlook for commercial real estate markets, debt laden REITs could be in trouble.  The once safe REITs game could become extremely volatile if investors start to pull out.  With the removal of dividends payments it’s certainly a possibility.