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Q: What Benefits Do REITs Offer Investors?


REITs offer investors the following benefits:-

(a) Ownership of investment grade real estate
By pooling capital sources, REITs can invest in large-scale investment grade commercial properties, which are typically out of reach of the ordinary retail investor. By investing in a REIT, an investor owns a 'pro-rata' share of the trust.

(b) Professional management
REITs are typically managed by experienced and professional managers. These managers are in turn overseen by an independent trustee and regulated by the Securities Commission.

(c) Stable dividend returns
REITs typically provide relatively stable cash flows since the majority of its revenue is generated by rentals under the terms of lease agreements with its tenants. These agreements are for specific durations, and may be subject to tenancy extensions.

(d) Potential capital appreciation
In addition to distributing dividend income at regular intervals, REITs also provide an opportunity for capital appreciation via any increase in the value of real estate held in its portfolio. In the case of a listed REIT, the unit price may appreciate subject to macroeconomics conditions, stock exchange sentiments and fund performance.

(e) Diversification
REITs enable investors to further diversify their investments by providing them the opportunity to pool their resources for the purchase of a diversified portfolio of authorised investments in real estate or real estate related assets. Further, investors in a REIT can usually access a broader range of real estate than they could invest on their own.

(f) Liquidity
In a listed REIT, units are generally more liquid as they are traded on a stock exchange and investors may purchase additional units or dispose all or part of their units on any market day on the stock exchange.

Category: About Real Estate Investment Trusts | Last updated: 16 March 2010

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