Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Real Estate Investment Trusts Offer Alternative Opportunities

Newspaper article Pittsburgh Post-Gazette (Pittsburgh, PA)

Real Estate Investment Trusts Offer Alternative Opportunities

Article excerpt

The average investor isn't going to buy into a shopping mall or an apartment building. But investing in real estate can be a useful way to diversify a portfolio.

That's why, especially when interest rates are low, fixed-income investors looking for alternative investments to maintain sufficient yield are giving more attention to real estate investment trusts.

Real estate investment trusts, also called REITs, allow investors to passively invest in real estate without directly owning property.

REITs are a hybrid because they trade like stocks, but they are different from stocks of regular companies because they invest in income-producing real estate, such as apartment buildings, hotels, office buildings, hospitals and shopping centers.

There are currently 14 such trusts featured in the Standard & Poors 500 stock market index.

Although they occupy a relatively small niche in the financial sector, the market share is growing. REIT Magazine reported in April that mergers and acquisitions of such trusts are on the rise. There were $17.4 billion in merger and acquisitions deals in 2014; $43.8 billion in 2015; and $50.6 billion in 2016.

"Yield-seeking investors who choose to add REIT funds to their portfolio must remain cautious," said Thomas Walsh, a portfolio manager with Palisades Hudson Financial Group in Atlanta. "While REIT funds offer good yield, like all other equities, they are volatile.

"But because REITs don't typically move with the stock market, it's one way to increase yield without increasing risk. It's a way to diversify," he said.

He recommends investors limit such investments to 7.5 percent to 10 percent of their equity allocation.

One of the big advantages of investing in real estate investment trusts is they must pay out at least 90 percent of income to investors.

Howard Davis, president of the Davis, Davis & Associates accounting firm in the Strip District, said the distributions are taxable. That is not a problem for investors who have such holdings in their retirement plans because that income is deferred until the investor begins taking distributions at retirement age.

"A lot of times, a REIT investment is better off in a retirement plan," Mr. Davis said. "But if you are paying taxes on REIT income, you have to consider that the value of the REIT itself fluctuates. If the REIT is not doing well, you could be paying taxes on an investment where the principle might be down."

Benjamin Greenfield, chief investments officer for Bridgeville-based Waldron Private Wealth, said his firm's exposure to such trusts increases or decreases as market conditions and valuations change. …

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