Equity real estate investment trusts reits?
A Real Estate Investment Trust (REIT) is a security that trades like a stock on the major exchanges and owns—and in most cases operates—income-producing real estate or related assets. Many REITs are registered with the SEC and are publicly traded on a stock exchange. These are known as publicly traded REITs.
Investing in REITs can add some diversification to your portfolio and give you access to passive income, liquidity and excellent long-term returns. However, taxes can be more expensive with REITs compared to other investment options, and there are still risks involved with the real estate market.
| # | Name | C. |
|---|---|---|
| 1 | Prologis 1PLD | 🇺🇸 |
| 2 | American Tower 2AMT | 🇺🇸 |
| 3 | Equinix 3EQIX | 🇺🇸 |
| 4 | Simon Property Group 4SPG | 🇺🇸 |
REIT stands for "Real Estate Investment Trust". A REIT is organized as a partnership, corporation, trust, or association that invests directly in real estate through the purchase of properties or by buying up mortgages. REITs issue shares that trade stock exchange and are bought and sold like ordinary stocks.
Equity REITs own and operate properties and generate revenue primarily through rental income. Mortgage REITs invest in mortgages, mortgage-backed securities, and related assets and generate revenue through interest income.
Here are some of the main disadvantages of investing in a REIT. Market volatility: Value can fluctuate based on economic and market conditions. Interest rate risk: Changes in interest rates can affect the value of a REIT.
Publicly traded REITs offer investors a way to add real estate to an investment portfolio or retirement account and earn an attractive dividend. Publicly traded REITs are a safer play than their non-exchange counterparts, but there are still risks.
In most cases, REITs utilize a combination of debt and equity to purchase a property. As such, they are more sensitive than other asset classes to changes in interest rates., particularly those that use variable rate debt. When interest rates rise, REITs share prices can be prone to volatility.
While some stocks distribute dividends on a quarterly or annual basis, certain REITs pay quarterly or monthly. That can be an advantage for investors, whether the money is used for enhancing income or for reinvestment, especially since more frequent payments compound faster.
We expect to see more institutional investors using REITs in 2023. Though we will continue to feel the aftershocks and tremors of the pandemic next year, we feel confident that REITs are on solid ground.
Can you pull money out of a REIT?
REITs are highly liquid; if you need to pull your money out, you simply sell your shares on a stock exchange.
REITs are real estate investments so you need to have a long-term horizon and realize that quarterly results really aren't that important. Yet, most investors will trade in and out of REITs based on short-term results/news and are very quick to lose patience if their thesis isn't playing out within a few quarters.
Since most non-traded REITs are illiquid, there are often restrictions to redeeming and selling shares. While a REIT is still open to public investors, investors may be able to sell their shares back to the REIT. However, this sale usually comes at a discount; leaving only about 70% to 95% of the original value.
| REIT | Forward dividend yield |
|---|---|
| Healthpeak Properties Inc. (PEAK) | 6.2% |
| EPR Properties (EPR) | 7.3% |
| National Storage Affiliates Trust (NSA) | 5.9% |
| Blackstone Mortgage Trust Inc. (BXMT) | 12.1% |
Direct real estate investments may be more expensive upfront but give investors increased control and flexibility. Both real estate and REITs can help investors hedge inflation and market downturn risks. Both can also be a source of regular cash flow, though REITs are a much more passive investment than real estate.
REITs are perpetual investments that have no maturity date and can theoretically continue to exist and grow their asset bases for decades. Unlike bonds, REITs tend to pay rising dividends over time as their cash flow grows, and thus tend to have offer better capital appreciation potential than bonds.
REITs historically perform well during and after recessions | Pensions & Investments.
REITs have many built-in tax efficiencies for investors. For example, they do not pay corporate income taxes, return of capital distributions are tax-deferred and REIT investors can deduct 20% of their dividends earned for the qualified business income deduction.
First, rising interest rates pushed up the costs of financing property purchases. Then, in March, some regional bank failures and false assumptions of an ensuing nationwide banking “crisis” triggered questions about the financial wherewithal of REIT tenants and possible follow-on effects on REITs themselves.
REITs' average return
Return a minimum of 90% of taxable income in the form of shareholder dividends each year. This is a big draw for investor interest in REITs. Invest at least 75% of total assets in real estate or cash.
Should I have REITs in my portfolio?
In the past two decades, market research and academic literature have suggested that adding REITs to a mixed-asset portfolio offers diversification benefits over long time horizons, primarily because of a low correlation with the U.S. stock market since the late 1990s.
The jump came after a poor performance in the prior quarter when the Dow Jones Equity All REIT Index recorded a negative 8.4% return. The strong fourth quarter carried over to an 11.3% return for 2023 as a whole for the REIT-focused index, underperforming the S&P 500's 26.3% return for the year.
Still, in a general sense, they are income securities and do trade like income securities. You can usually count on high-yielding REITs moving up when rates are moving down. Individual REITs like Realty Income Corp.
Bottom line. Investors eyeing REITs may find a potential recovery ahead. With rate cuts on the horizon, many publicly traded REITs have rebounded, and the industry as a whole seems well-poised for a recovery in the coming year.
If you are interested in a real estate investment that is reliable, hands-off and offers dividends, REITs could be the answer. If you're looking for a higher-risk – but high-potential – investment or want to be able to invest in specific companies you admire, buying individual stocks could be the answer.
