THE REIT ADVANTAGE
THE REIT ADVANTAGE
Understanding and Investing in Commercial
Real Estate through Non-Traded REITs
What you should know
Investments in non-traded real estate funds are subject to substantial risks that may include:
? Absence of a public market for these securities ? Limited transferability ? Lack of liquidity and share repurchase at a share price
less than initially paid
? Lack of an operating history of the sponsor
and/or advisor
? Absence of properties identified for acquisition and lack
of diversification in property holdings until significant funds have been raised and invested
? Mortgage indebtedness ? An offering price that may not accurately reflect the
value of assets
? Disruptions in the financial markets and deteriorating
economic conditions
? Payment of significant fees to advisors and/or
their affiliates
? No requirement to effectuate a liquidity event by a
certain date, if at all
? Uncertain distribution amounts and/or distributions that
may be paid from sources such as borrowings, offering proceeds or advances that could reduce overall investor returns
? Potential conflicts of interest
Investments in any particular fund are not suitable for all investors. Refer to the fund's prospectus for a more detailed discussion of risks and suitability standards in your state.
THIS IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES. AN OFFERING IS MADE ONLY BY A PROSPECTUS.THIS SALES AND ADVERTISING LITERATURE MUST BE READ IN CONJUNCTION WITH A PROSPECTUS IN ORDER TO UNDERSTAND FULLY ALL OF THE IMPLICATIONS AND RISKS OF THE OFFERING OF SECURITIES TO WHICH IT RELATES. A COPY OF A PROSPECTUS MUST PRECEDE OR ACCOMPANY THIS MATERIAL. An investment in any Steadfast product involves a high degree of risk and there is no assurance that the investment objectives of the program will be attained. Steadfast Capital Market Group, LLC, member FINRA/SIPC, is the dealer manager for securities offered by Steadfast Companies or its affiliates.
Today, many investors are focusing on their longterm financial objectives with an increasing desire to strike a balance between the risk and reward potential in their investment portfolio.
Investments in public, non-traded real estate investment trusts (REITs) may complement efforts to create a stable, diversified portfolio while also potentially preserving capital, generating income, softening the effects of inflation and providing capital appreciation.
REIT FUNDAMENTALS
REIT Fundamentals
Investors have long known the value that real estate investments can offer, but most individuals lack enough capital to acquire and create a diversified real estate portfolio, especially when it comes to commercial real estate.
However, in 1960 Congress passed legislation to allow individual investors the opportunity to participate in the ownership of income-producing properties in the form of a REIT.
A REIT is a company that pools the money of many investors to purchase and, in most cases, operate income-producing real estate.
The stockholders of a REIT are purchasing equity in the REIT and, in turn, earning a pro-rata share of the potential economic benefits that can be derived through commercial real estate ownership.
REIT investors get many of the potential advantages of property ownership, but leave the hassles of identifying, acquiring and managing those assets to the REIT sponsor.
For investors, including a REIT allocation in their portfolio may offer key advantages such as:*
Capital preservation
Attractive risk-adjusted returns
Stable cash flows
Professional management
Diversification
Potential inflation hedge
* REIT investments do not guarantee a profit or ensure against a loss
Types of REITs
To qualify as a REIT, a company must comply with a number of requirements, including having most of its assets and income tied to real estate investments and distributing at least 90 percent of its taxable income to shareholders annually in the form of dividends.
Equity REIT
Equity REITs are the most common type of REIT and are what most people are familiar with. Equity REITs purchase, own and manage income-producing real estate properties and may be beneficial for long-term investors because, in addition to potentially earning dividends from rental income, they also receive any capital gains from the sale of properties.
Mortgage REIT
Mortgage REITs lend money directly to real estate owners and their operators, or indirectly through acquisition of loans or mortgage-backed securities.They do not invest in properties, but generate revenue through the interest that they are paid on their mortgage loans.
Hybrid REIT
Hybrid REITs are a combination of equity and mortgage REITs.They own property and make loans to real estate owners and operators. Hybrid REITs earn money through a combination of rents, capital gains and interest.
A further REIT classification is based on how shares of the REIT can be purchased and held. REITs can either be publicly traded, public non-traded or private.
Public Traded REITs
Traded REITs have shares listed on a national securities exchange (such as the NYSE).They are registered with and regulated by the U.S. Securities and Exchange Commission (SEC) and required to file certain reports with the SEC pursuant to federal securities laws, including quarterly and annual reports.Traded REITs are more liquid than non-traded REITs, however, they are subject to the same market fluctuations and volatility as other exchange-traded stocks.
Public Non-Traded REITs
Non-traded REITs are also registered with and regulated by the SEC and required to file certain reports with the SEC pursuant to federal securities laws, including quarterly and annual reports. However, non-traded REITs are not listed on any public securities exchange, making them less liquid than their traded REIT counterparts. Non-traded REITs are generally considered more stable and less volatile than traded REITs because they are not subject to the same stock market fluctuations as traded REITs. However, non-traded REIT investors generally do not have the ability to realize any gain on the sale of their shares until the REIT completes its cycle of fundraising, operation and liquidation and the price per share received by an investor upon liquidation may not necessarily reflect the value of the company.
Investors must meet minimum suitability requirements to invest in non-traded REITs.
Private REITs
Private REITs are not registered with the SEC or traded on a securities exchange and are subject to less regulation with the exception of guidelines associated with qualifying and maintaining REIT status.
Summary of Public REIT Classifications
Holding Period Share Price
Liquidity
Volatility
Traded REITs
Flexible.As long or short as investor chooses
Variable based on trading on an exchange
Highly liquid
Exposed to stock market fluctuations
Non-Traded REITs
A long-term investment.Typically a multi-year holding period
Stated share price which generally does not fluctuate during the initial offering period
Very Limited. Restricted redemption programs may be made available by REIT sponsor
Insulated from stock market fluctuations
TYPES OF REITS
INVESTMENT STRATEGIES
REIT Property Types
REITs feature different investment strategies and may vary in the types of income producing properties they focus on as well as the specific geographic areas they target.
Some of the possible categories of commercial real estate a REIT may specialize in:
Apartments Industrial Office
Retail Healthcare Hospitality
Investment Strategies
There are three primary categories of REIT investment strategies, each with its own risk and return characteristics. A REIT will typically acquire assets that fit within its respective investment strategy. To choose an investment that is the best fit, an investor must decide what their risk tolerance is, then choose a REIT with a corresponding investment strategy.
OPPORTUNISTIC
Opportunity for significant appreciation or returns by developing or redeveloping properties in secondary markets.
CORE
Produces current income from stable, operating assets in well-established markets that require a minimum of capital improvements.
VALUE-ADDED
Provides value appreciation from moderately well-leased properties or pre-leased development.
POTENTIAL RETURN
RISK
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