Is it Time to Add REITS to Your Retirement Plan?

Real Estate Investment Trust commonly known as equity REITs has historically out the broader market when faced with troubling economic times.

Dividend growth and yield sustainability with interest rate and inflation protection; an improving economy benefits equity REIT operating fundamentals.

REITs provide investors with a cost and risk efficient vehicle to invest in commercial real estate.

REITs generally offer:

•           Daily liquidity

•           Better transparency

•           Financial flexibility

•           Strong corporate governance and structure

Look for REITs that offer:

1. A history of incremental increases in both portfolio net asset value and business model fair value
2. A full-service real estate skill set
3. Lower dividend payout ratios
4. Debt lEBITDA data below 6 times
5. Fixed-charge coverage ratios above 2.5
6. Niche, competitively advantaged operating strategies
7. Operating strategies and portfolios focused on less cyclical consumer services, such as health care or necessity retail
8. Operating strategies not overly dependent on strong economic and employment growth and consumer discretionary spending

Presently, the average equity REIT dividend payout ratio is 69, near its historic low of 66. The 69 level allows equity REITs a sufficient cash flow cushion to increase annual dividends at the historic 5 growth rate, even amid slower economic growth.

This study and recommendation was recently highlighted in an article published by Investment adviser based on data collected by Morningstar. It was suggested that one should consider placing a portion of one’s retirement plan in equity based real estate investment trusts (REITS).

Daniel Iuculano

Financial & Wealth Planner