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Real Estate Investment Trusts

Real Estate Investment Trusts (REITs) or Direct Participation Programs (DPPs) are structures designed to give an investor the ability to invest in Real Estate or other similar hard assets.  A REIT will own and/or operate income producing real estate. REITs invest in a variety of types of real estate including but not limited to shopping malls, apartment buildings, student housing, office buildings, hospitals and hotels. Investors benefit from the income produced by, and in some cases the appreciation of, the underlying real estate without requiring any active management. In addition, some REIT programs may offer tax favored treatment of the dividends to the investor. REITs/DPPs are a form of alternative investing and offer some of the benefits of non-correlation that are incumbent in that asset class.

REITs may not be appropriate for all investors. Certain REITs may have limited transferability and lack liquidity. The value of an investment in a REIT may fluctuate based on economic, regulatory, and environment factors. The value of the units of shares of the trust will fluctuate with the portfolio of the underlying real estate properties. Redemption may be at a price which is more or less than the original price paid for the units by the investor. The suitability of such a product will be assessed for clients based on their objectives, risk tolerance, and time horizon. While the REIT’s intention is to provide a stable dividend, dividends are dependent on properties and rental income and are not guaranteed.

Types of REIT Ownership:

  • Equity REITs invest in and own properties. The revenues are generated by leases of the property.
  • Mortgage REITs deal in the ownership of the mortgages, loan money for mortgages, purchasing of existing mortgages or mortgage back securities. The revenues are generated by the interest earned on the mortgages.
  • Hybrids REITs combine strategies by investing in both.

Categories: REITs come in three categories;

  • Publicly Traded: REITs the file with the SEC and whose shares trade on a national stock exchange. As a result of the availability of an exchange publicly traded REITs have a great deal of liquidity
  • Public Non-Listed: REITs that file with the SEC but whose shares do not trade on a national stock exchange. As a result on not trading on an exchange liquidity is usually limited.
  • Private: REITs that are not registered with the SEC and whose shares do not trade on a national stock exchange. The terms of redemption will vary from program to program. Liquidity may range extremely limited to illiquid for a period of time.
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