With modest economic growth and an extended bull market in stocks, is this the time for Real Estate Investment Trusts (or “REITs”)?
REITS FOR TODAY’S MARKET ENVIRONMENT
“We like what we see on the ground,” Griffin Capital Chief Economist, Dr. Randy Anderson told Fox Business in August. “Occupancy rates are strong, vacancy rates are low, so we’re seeing good, strong fundamentals and strong NOI (net operating income) growth.”
Also, REITs are attractively valued. “A lot of the REIT market is undervalued, trading at approximately two percent below net asset value, but you have some companies in the retail sector trading double digits below net asset value, you’ve got the office sector trading at double digits below net asset value and we also like industrial, even though it’s trading at a slight premium,” said Dr. Anderson.
WIDEN YOUR INVESTMENT OPPORTUNITIES
Investing for your future? Stocks, bonds and mutual funds are not your only options. To reach your financial goals, you may need to go beyond traditional investments. With more than 20 years of helping investors build better portfolios, Griffin Capital, a leading alternative asset manager with nearly $11 billion in assets under management, believes real estate should be a core holding in the portfolio of every investor.
Often seen as hybrid of stocks and bonds, real estate has been used by institutional investors and ultra-wealthy individuals for decades to generate consistent income, realize growth of capital and to diversify investment holdings. While the high costs of buying properties may make real estate investing prohibitive for many individual investors, REITs offer an efficient way to invest in real estate without high capital requirements. With REITs, investors also don’t have to manage and maintain the properties themselves.
WHAT’S A REIT?
A REIT is a professionally managed company that pools money from investors and uses those funds to build a portfolio of income-producing properties. Investors that purchase REIT shares receive ownership interest in the portfolio and receive income (paid monthly or quarterly) from rent payments of the leased properties and capital gains from the profit realized in property sales.
REITs may purchase various types of properties, including office buildings, warehouses, apartment buildings, healthcare facilities, data centers and self-storage facilities. Depending on its objectives, a REIT may own just one type of property (e.g., office buildings) or it may own several types of properties.
TYPES OF REITS
REITs that purchase properties are known as equity REITs, which are the most popular of the three varieties of REITs. There are also mortgage REITS, which provide direct financing to buyers of real estate or purchase mortgage-backed securities. Mortgage REITs generate revenue from the payment of interest from borrowers, which are then passed on to investors. A third variety are hybrid REITs, which are a combination of equity and mortgage REITs.
REITs can be traded or non-traded. Traded REITs are registered and regulated by the U.S. Securities and Exchange Commission (SEC) and are bought and sold just like stocks on a securities exchange such as the New York Stock Exchange (NYSE).
Non-traded REITs are also registered and regulated by the SEC. As their name implies, non-traded REITs are not bought and sold on a securities exchange. Instead, shares are purchased through financial advisors and are generally less liquid than traded REITs. Non-traded REITs are typically priced based on net asset value, so do not fluctuate in price with the stock market like traded vehicles do.
In addition, there are also private REITs, which also are not traded on a securities exchange. Private REITs are not registered with the SEC and are generally sold to accredited investors.
POTENTIAL BENEFITS OF REITS
Income is one of the biggest benefits of REITs. In this low-yield environment, REITs can offer investors high income relative to bonds and stocks because the Internal Revenue Services (IRS) requires them to pay out at least 90 percent of their taxable income to shareholders annually. Unlike bonds, which typically have fixed coupons, REIT distributions to shareholders have the potential to increase as lease agreements may have annual rent increases built in.
REITs tend to have low-to-moderate correlation with stocks and bonds, making them effective in improving portfolio diversification.
REITs also have certain tax advantages such as tax deferral. Depending on the classification of the distribution received, taxes may only be due on a portion of that distribution. Also, tax reform in 2017 effectively allowed investors to keep more of the distributions received.
To learn more about REITs and Griffin Capital, visit griffincapital.com.
This is neither an offer to sell nor a solicitation of an offer to buy securities. An offering is made only by a prospectus. An investment in any products offered by Griffin Capital involves a high degree of risk and there can be no assurance that the investment objectives of the program will be attained.
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