Real Estate Investment Trusts (REITs)

Created in the US over 50 years ago, Real Estate Investment Trust (or REITs) have grown exponentially, and have also expanded globally, existing today in over 30 countries. Different types of REITs have emerged as well, offering diversification from traditional real estate sectors (Retail, Office, Industrial & residential). Today’s REIT market offers opportunities to invest in Telecom and Energy Infrastructure, Timberland, Healthcare, and Data Center Real Estate.

Similar to convertibles, REITs have historically offered downside protection while providing upside potential. For REITs that hold real estate assets, the value of the assets can help protect against slides in value when equity markets are declining. REITs also can offer attractive income streams, which further cushion downside risk. Finally, any appreciation in the underlying assets of a REIT typically will lift the value of a REIT when economic conditions are favorable.

The Role of REITs in an Investment Portfolio

Investing in real estate can offer attractive return opportunities, dampen portfolio volatility, and act as a portfolio diversifier. Since 1972, investment portfolios having 10% and 20% REITs have outperformed those portfolios with no REITs.

Dividend and Inflation

During periods of high inflations, REITs have outperformed both stocks and bonds.

Investing in Real Estate Trusts (REIT’s) involves risk. No assurance can be given as to when or whether adverse events might occur in this sector that could cause immediate and significant losses to principle invested due to, but not limited to the following risks: REITs invest in companies that are primarily in the real estate industry. Therefore, a REIT is subject to similar risks as investing in real estate directly. The real estate market is very sensitive to economic and business cycles. The unit price of a REIT will decline if the underlying properties that it owns decline in value. A REIT may have an operating loss and may not pay dividends to its unit holders. A number of factors may affect the income that a given parcel of real estate generates including, among others, the supply of and demand for real estate in a particular region or sector, interest rate changes, tax increases, governmental regulation, company layoffs, corporate profits, employment trends and demographic trends such as population shifts. In addition, the unit price of REITs may be highly volatile based on the flow of money in and out of the REIT market.