Investing in a REIT

Individuals looking to invest in a Listed REIT can do so by purchasing shares through a licensed securities dealer. Depending upon the REIT, investors may have the option of purchasing common stock, preferred stock or debt securities.

Investors may also purchase shares in a REIT mutual fund or REIT exchange-traded fund (“ETF”). These funds invest the majority of their assets in equity REIT securities and related derivatives. Investors can compare and evaluate the performance of funds through information sources such as Morningstar®, Inc., which provides detailed information on funds’ past performance, current portfolio holdings and costs of investing.

Individuals looking to invest in a Non-Listed REIT can do so by contacting the REIT directly for a copy of the company’s annual report, prospectus and other financial information. Typically much of this information is available on the REITs website. Many financial websites offer a wide range of investment research and information on Non-Listed public REITs.

FFO

The REIT industry uses Funds From Operations (FFO) as a key indicator of a REITs operating performance. FFO applicable to common shares and limited partnership units means net income (computed in accordance with Generally Accepted Accounting Principles (GAAP)), excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect funds from operations on the same basis.

Payout Ratio

The REIT Industry uses “Payout Ratio” as a key indicator of a REITs ability to pay its current dividends. Payout Ratio is calculated by dividing Dividends per Share by Funds from Operation per Share. For example, ($0.75 dividend / per share) divided by ($1.00 FFO / per share) equals a 75% payout ratio. 

Choosing a REIT 

  • When choosing a REIT, consider your own investment goals and philosophy. Look for a REIT that shares or compliments those goals and philosophy. Other items to consider:

• Income Stream: Does the REIT have a history of reliable and consistent dividend payments?

• Asset Type: Does the REIT buy and own properties you believe will be successful?

• Management: Does the REIT have a strong management team, or advisor with record of success?