Real Estate Investment Trusts

REAL ESTATE BEYOND YOUR HOME

Traditionally, investing in real estate has been synonymous with buying a home. For years, opportunities in commercial real estate, either indirectly through real estate investment trusts (REITs) or directly through private transactions, were classified as alternative opportunities that were mostly available to institutional investors.

Today, real estate investing has gained more popularity among investors around the globe. With increased access to commercial real estate through REITs, competitive historical performance, potential diversification benefits, and the increased globalization of commercial real estate, this once alternative sector now has a place
in a diversified portfolio.

  • Equity REITs are companies that own, manage, and lease investment-grade, income-producing commercial real estate
  • REITs must be in the real estate business
    > At least 75% of assets must be real property
    > At least 75% of revenue must come from real estate
  • At least 90% of taxable income must be distributed annually to shareholders
  • Company receives a dividends paid deduction
  • Taxes are paid at the shareholder level

DIRECT COMMERCIAL REAL ESTATE

  • Unlike REITs, direct investment in real estate is not traded on an exchange
  • Traditionally part of the asset-allocation strategy for pension funds and large institutional investors
  • Direct control
    > Ability to select individual properties
  • Investment performance characteristics
    > Competitive risk-adjusted returns
    > Low volatility of returns
    > Low correlation with other investments

DIVERSIFICATION THROUGH GLOBAL REAL ESTATE INVESTMENTS

  • Over the past 40 years, the United States and, more recently, Hong Kong have provided investors with the majority of opportunities for investing in publicly traded equity REITs and listed property companies
  • Introduction of REITs and publicly traded real estate in Europe and Asia has created new investment opportunities abroad
  • Global real estate investments generally have low correlations to other asset classes
  • May provide additional diversification benefits

* REITs are financial vehicles that pool investors’ capital to purchase or finance real estate. REITs involve such risks such as refinancing, economic conditions in the real estate industry, changes in property values and dependency on real estate management. Diversification does not ensure a profit or protect against loss.