UNDERSTANDING REITS

WHAT IS A REIT?


A Real Estate Investment Trust - or "REIT" - is a professionally managed company that mainly owns, and in most cases operates, income-producing real estate. REITs pool the money of numerous investors to purchase a portfolio of properties that the typical investor might not otherwise be able to purchase individually. The properties owned by a REIT create income that may be passed to investors as distributions. In fact, REITs are required by law to pass at least 90 percent of taxable income to stockholders.




REITS AND TODAY'S INVESTMENT LANDSCAPE


Ongoing concerns about market volatility, coupled with a desire for investments that offer the potential for a predictable stream of income, continue to influence long-term investment strategies. These same issues have fueled a growing interest in REITs.

Why? Because REITs offer investors the opportunity to diversify their portfolios beyond publicly traded stocks, bonds, and mutual funds. Equally important, they may also be a suitable choice for investors seeking:


  • Capital preservation

  • Monthly income

  • Growth potential


TYPES OF REITS


While all REITs invest in real estate, exactly how they invest varies. Some REITs directly own the real estate in their portfolios, while others hold mortgages on their properties. Additionally, some REITs are publicly traded on a national securities exchange and others are not, which affects how investors can purchase shares in the REIT.


REITS CAN BE PROPERTY OWNERS OR MORTGAGE HOLDERS


Equity REITs purchase, own, and manage income-producing real estate properties. Investors in equity REITs have the potential to earn dividends through rental income from the property and capital gains from any appreciation in the property’s value when it is sold.

Mortgage REITs lend money directly to real estate owners and their operators, or acquire loans that are secured by real estate. These REITs generate revenue through the interest that they are paid on the loans.

Hybrid REITs are a combination of equity and mortgage REITs. Their income-producing potential comes from rent and capital gains (like an equity REIT) as well as interest payments (like a mortgage REIT).



(The buildings in the photographs contained herein are examples of properties that a REIT may own.)



REIT PROPERTIES


Different REITs tend to feature different investment objectives and may vary in the types of properties they focus on:

  • Office Buildings

  • Healthcare Facilities

  • Industrial/Warehouse

  • Apartment/Multi-Family

  • Retail Space

  • Self-Storage

  • Hospitality

REITS CAN BE TRADED OR NON-TRADED


Traded REITs are bought and sold just like traditional exchange-traded stocks. As such, they are subject to the same sort of market fluctuations as exchange-traded stocks. Traded REITs are registered with and regulated by the U.S. Securities and Exchange Commission (SEC).


Non-traded REITs are also registered with and regulated by the SEC, but they are not bought or sold on a national stock exchange. Some investors view non-traded REIT shares as more stable than traded REITs and stocks in general. However, non-traded REITs do not offer the liquidity of traded REITs. Investors in non-traded REITs are typically seeking income from distributions over a period of years. Upon liquidation, return of capital may be more or less than the original investment, depending on the value of assets. Investors must meet minimum suitability requirements to invest in non-traded REITs.