Real Estate Investment Trusts (REITs)
Characteristics of REITs
We offer a range of real estate investment trusts (REITs), which own and typically operate income-producing real estate assets, such as office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and real estate mortgages or loans. Unlike other real estate companies, REITs do not develop real estate properties to resell them, but rather buy and develop properties primarily to operate them as part of their own investment portfolio.
As an investment for a client, REITS provide exposure to the investment performance of commercial real estate. REITs are required to pay out most of the taxable income to their shareholders. Some REITs can offer higher dividend yields than some other investments.
We offer publicly traded REITs (traded REITs), which are typically listed for trading on a national securities exchange. We do not offer non-traded REITs, which are not listed for trading on public exchanges. While traded REITs can be bought and sold on a secondary trading market, the non-traded REITs cannot be bought or sold readily in a secondary trading market and are typically only available for purchase when the REIT is conducting a public offering of its shares. While the market price for shares of traded REITs is readily available, that is not the case for shares of non-traded REITs. Shares of non-traded REITs are considered to be illiquid investments because you may not be able to sell your shares readily. Also, in the case of non-traded REITs, which generally are purchasing real estate assets as they are conducting their offerings, dividend yields may come from offering proceeds or borrowings rather than from rental income, reducing the amount available to invest in real estate assets. Non-traded REITs also typically have an external manager whereas traded REITs typically have internal employees. The interests of external managers, who receive fees from the REIT for managing the REIT and assisting with acquisitions, can conflict with the interests of the shareholders of the non-traded REITs.
Fees and Costs
You will pay a commission when you buy shares in a REIT’s public offering or buy or sell shares in a REIT in a secondary trading market. For an initial offering purchase, the REIT commission is a one-time fixed fee, typically a percentage of the investment amount. The commission is deducted from the amount you invest. For a purchase or sale transaction in the secondary trading market, the REIT commission is also a one-time fixed fee. The commission is a separate charge from the purchase or sale amount.
For example, in the secondary trading market, if you purchase 200 shares of a $40 per share REIT or 100 shares of an $80 per share REIT (an investment of $8,000), you will typically pay a $208 commission.
REITs bear the fees and expenses associated with acquiring, operating, and disposing of their assets. You pay these fees and expenses indirectly because they impact the profitability of the REIT and the value of your shares.
More information about Real Estate Investment Trusts, including their initial commissions and ongoing fees and expenses, is available in the REIT’s prospectus. If you are interested in obtaining a prospectus, please contact your financial advisor.
Information about the commission fees you will pay BFE for REIT transactions is available on our Equity and Option Commission Schedule.