REITs are part of most portfolios

SOUND INVESTMENT: Karl Sherry, a founding partner of Hayes & Sherry Real Estate Services in Providence, said most REITs are interested in acquiring higher-end properties. / PBN PHOTO/BRIAN MCDONALD
SOUND INVESTMENT: Karl Sherry, a founding partner of Hayes & Sherry Real Estate Services in Providence, said most REITs are interested in acquiring higher-end properties. / PBN PHOTO/BRIAN MCDONALD

Do you have a REIT in your portfolio?
The answer most likely is yes as Real Estate Investment Trusts, companies that own and often operate income-yielding real estate, often find a place in many investors’ portfolios.
“Almost all of my clients have at least a small percentage in REITS,” said Dan Forbes, owner of Forbes Financial Planning Inc. in Providence. “If you think of a mutual fund that pools money and buys stocks, a REIT is very similar, except it’s pooling money and buying real estate property.”
However, it’s highly unlikely that any REITs in a Rhode Islander’s portfolio are for properties inside the Ocean State as the makeup that makes them a popular investment discounts the state as a hot market.
Karl Sherry, a founding partner of Hayes & Sherry Real Estate Services in Providence, said most REITs are interested in acquiring higher-end properties, in the $20 million and up value range.
Rhode Island, of course, has a limited supply of such properties.
“Rhode Island is a tertiary market,” Sherry said. “There are only so many buildings here that [REITs] would be interested in.”
REITs were established by Congress in 1960 in order to allow the average investor – including those who today are planning for retirement through Individual Retirement Accounts [IRA] and company-facilitated 401[k] plans – to make investments in large real estate.
To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders and have at least 75 percent of its income tied to real estate investment. REITs cannot pass tax losses through to investors.
A REIT investment works similarly to buying stocks of corporations. REIT investors purchase, for instance through mutual funds, a portion of a REIT and earn a share of the REIT’s income.
As of Jan. 1, 2012, according to the national association, there were 166 REITs registered with the Securities and Exchange Commission in the United States that trade on one of the major stock exchanges. Those REITs had a combined equity market capitalization of $579 billion. According to the National Association of Real Estate Investment Trusts, REITs provide investors with “portfolio diversification, strong and reliable dividends,” and a positive historical performance.
“[In the year] 2008, REITs obviously were hit along with every other part of the market, but it has dramatically bounced back,” Forbes said. Forbes said REITs remain a good investment option because they allow shareholders to mitigate the risk involved with real estate investing.
“There are REITs that have in the past and continue to look at opportunities in Rhode Island across all asset classes,” said Alden Anderson, senior vice president and partner at the Providence office of CBRE, a national real estate services firm.
Anderson declined to name specifics but said there are some local buildings that are part of publicly-traded REITs.
Hotel Viking in Newport is in the portfolio of LaSalle Hotel Properties, a Bethesda, Md., REIT with 38 properties in nine states and Washington, D.C. It also owns the Westin Copley Place in Boston.
Providence Place mall is part of General Growth Properties Inc., the second-largest REIT in the United States by revenue, with headquarters in Chicago, Ill.
Federal Realty Investment Trust, headquartered in Rockville, Md., owns the shopping center in 55 Faunce Corner Road in North Dartmouth, Mass.
The Emerald Square Mall in Attleboro and Wrentham Village Premium Outlets in Wrentham, Mass., belong to Simon Property Group, a French REIT based in Indianapolis, Ind.
“There are some [REITs] that would operate on a much smaller scale, but most REITs are designed as big funds,” Sherry said. •

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