REITs as Alternative

Investments
By Elizaveta Shishkova
Vasil Aydarov
Isidora Turnaj-Elhart
Francesco Torraco
Definition & Functions

• “A real estate investment trust, or REIT, is a company that owns,

operates or finances income-producing real estate. For a company
to qualify as a REIT, it must meet certain regulatory guidelines.
REITs often trades on major exchanges like other securities and
provide investors with a liquid stake in real estate.”-Investopedia
• FUNCTIONS
• Collective investment vehicle into commercial real estate
• Owns, and/or operates, income-producing property
• Finances real estate
How To Qualify (The US)

• Be taxable as a corporation but for its REIT status;

• Be managed by a board of directors or trustees;
• Have shares that are fully transferable;
• Min of 100 shareholders after its first year as a REIT;
• Have no more than 50% of its shares held by five or fewer individuals during the last
half of the taxable year;
• Invest at least 75% of its total assets in real estate assets and cash;
• Derive at least 75% of its gross income from real estate related sources
• Derive at least 95% of its gross income from real estate sources and dividends or
interest from any source;
• Have no more than 25 % of its assets consist of non-qualifying securities or stock in
taxable REIT subsidiaries.
Categories

• Equity REITs
• invest in and own income-producing real estate properties
• distribute at least 90% of the portfolio’s income as dividends 
• Invest in leasing, development, and construction
• Mortgage REITs
• invest in and own property mortgages
• Make mortgages (lend money), usually on existing property
• Buy mortgages
• •Hybrid REITs
• Invest in properties and make loans
Types pf REITs by Property
Structure
Cash Flows
Why to Invest?

• Portfolio Diversification
• Low correlation with other assets
• Access to Real Estate market
• Tax Benefits on Corporate Level
• Capital Gain + Dividends
• Inflation Hedge
• Liquid
• Is it an income stock or growth stock
• REITs are ~income stocks:
• Dividend restrictions
• Mostly, REITs will invest in mature income producing properties
Correlation
Risks

• More volatile than property prices

• Higher correlation with equities than real estate prices
• Growth as limited due to Dividend Regulations
• Mortgage REITs: interest rate exposure
• Real estate Cycles
• High and complicated Fees
• Competition and Consolidation
• Tax Reform and maintaining REIT status
Risks and Drivers
Performance

• $1 Invested
• Dividends reinvested
Relative Performance
Benchmarked performance until 2016
Real Example – STAG Industrial Inc.

• REIT that is focused on the acquisition and operation of single-

tenant, industrial properties throughout the USA
• Owning 314 buildings, amounting for a total of 60,878,204
rentable square feet (5,655,858 square meters)
• Two main building types: Warehouse/Distribution & Light
Manufacturing
• Net Income for 2016: $34.5M
STAG Industrial Inc. – Performance &
Structure
Sources

• https://www.sec.gov/fast-answers/answersreitshtm.html
• https://www.reit.com
• https://www.investopedia.com
• https://
beta.marketrealist.com/2017/07/investing-reits-risk-worth-taking?utm_s
ource=redirect50&utm_medium=auto
• https://
www.blog.invesco.us.com/commercial-real-estate-reit-performance
• https://www.simplysafedividends.com/real-estate-investment-trusts-reits/
• Annual Report of STAG Industrial Inc.