The State of Real Estate Investment Trusts (REITs)

“The average investor has no idea what’s going on, but this is a big shift.”1

That’s what Robert Gordon, the head of New York brokerage firm Twenty-First Securities, said about the reclassification of real estate investment trusts from the financial services sector into their own individual category.

It’s not often that an investment makes this shift, but that’s exactly what is happening this fall. Some stock exchanges are getting a new category — real estate — which real estate investment trusts, better known as REITs, will fall under.2

If you’re not familiar with a REIT, it is a type of security that invests in real estate through purchasing, managing and developing real estate properties. It works similar to a mutual fund, enabling even small individual investors to acquire shares of real estate ventures such as apartment complexes, hospitals, office buildings, warehouses, hotels and shopping malls. REITs are required to pay out at least 90 percent of their dividends, on which investors must pay income taxes for their share.3

Because REITs rely on the health of the real estate market, they did not fare so well during the recession and real estate market decline. But in recent years, they’ve improved with the help of foreign money pouring into domestic real estate, stronger rental markets and the growing economy.4

Low rates are one reason why REITs have outperformed recently. The less it costs to borrow money, the higher the demand for real estate, which can increase the value of REIT holdings.5 In fact, U.S. REITs listed on the stock exchange outperformed the S&P 500 during the first half of 2016.6

It’s important to consider any investment within the context of your own goals, risk tolerance, investment timeline and the composition of your overall portfolio. We will only provide investment advisory services after we have assessed your financial situation. If you’re interested in a comprehensive review of this nature, we’d be happy to schedule a time to discuss this with you further.

Content prepared by Kara Stefan Communications.

1 Michael Wursthorn. The Wall Street Journal. July 11, 2016. “Wealth Adviser Daily Briefing: When the S&P 500 Breaks Out REITs, Investors May Get a Tax Bill.” http://blogs.wsj.com/moneybeat/2016/07/11/wealth-adviser-daily-briefing-when-the-sp-500-breaks-out-reits-investors-may-get-a-tax-bill/. Accessed July 28, 2016.

2 Than Merrill. The Street. Feb. 14, 2016. “REITs Likely to Gain Ground in 2016.” https://www.thestreet.com/story/13435112/1/reits-likely-to-gain-ground-in-2016.html/. Accessed July 28, 2016.

3 Mark P. Cussen. Investopedia. June 2, 2016. “REITs: How Long Can They Stay This Hot?” http://www.investopedia.com/articles/investing/060216/reits-what-you-need-know-about-them-right-now.asp. Accessed July 28, 2016.

4 Diana Olick. CNBC. June 27, 2016. “How the UK’s exit benefits US REITs.” http://www.cnbc.com/2016/06/27/how-the-uks-exit-benefits-us-reits.html. Accessed July 28, 2016.

5 Konrad Putzier. The Real Deal. July 27, 2016. “Here’s why REIT stocks are on the rise.” http://therealdeal.com/2016/07/27/heres-why-reit-stocks-are-on-the-rise/. Accessed July 28, 2016.

6 REIT.com. July 11, 2016. “REITs Outperform S&P 500 in 2016 First Half.” https://www.reit.com/media/nareit-media/reits-outperform-sp-500-2016-first-half. Accessed July 28, 2016.

We are an independent firm helping individuals create retirement strategies using a variety of insurance and investment products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic financial planning strategies and should not be construed as financial advice. All investments are subject to risk including the complete loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference.

AE08165105C