Benefits of REIT Investing

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  • Benefits of REIT Investing
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Why Should Investors Have Exposure to REITs?

Over decades, REITs have delivered high, tax efficient dividends plus capital appreciation. Moreover, due to their focus on paying regular dividends which are derived from contractual tenant rental payments, they are ideal for investors seeking regular forms of income such as retirees who rely on their investment portfolio to cover every day living expenses.

REITs also have low correlations to other equities and fixed-income investments and, as a result, are a good portfolio diversifier. Moreover, individual investors should consider following the example of large institutional investors such as pension funds who have 5% to 15% of their total portfolio allocated to real estate and real assets.

In summary, REITs have a long track record of providing investors with:

Attractive long-term performance Liquidity (especially vs. private real estate)
High, tax efficient and stable dividends Transparency; and regulation and portfolio diversification

Source: Nareit.
Source: Nareit.

Why Now?

In light of the rapid and significant increase in interest rates beginning in 2022, REITs are attractively valued and trading at a wide discount to NAV. Notwithstanding the lower valuations, fundamentals across most REIT subsectors remain very solid with increases in cash flows more than offsetting the impact of higher capitalization rates. Moreover, the best REITs have reduced their debt levels and locked in lower borrowing costs prior to the recent increase in interest rates. Furthermore, as the chart below shows, REITs have historically been a good hedge against inflation.

Source: RBC Capital Markets, February 28, 2023.
Source: RBC Capital Markets, February 28, 2023.

Is Home Ownership a Good Substitute For Investing In REITs?

A house should not be considered an investment but instead is more similar to a consumption good, especially when financed by a mortgage. To this point, one’s home does not generate income but instead requires the owner to cover the cost of mortgage interest, property taxes, insurance and maintenance.

REITs, on the other hand, provide exposure to commercial real estate which generates recurring and often growing levels of income for investors. Last but not least, REITs are liquid investments often diversified by sector and geography versus a house which is much less liquid with more concentrated risk.

 

Middlefield’s Real Estate Solutions

Middlefield’s real estate strategies are designed for investors seeking income and growth from a portfolio of large-cap companies diversified across the global real estate sector. Middlefield’s history in real estate began when the firm was founded over 40 years ago and we have been managing dedicated REIT strategies for over 10 years. Our solutions provide Canadian investors with global exposure to a sector that has attractive defensive and inflation-protection attributes. Middlefield’s real estate funds have won multiple awards in the real estate sector.

Strategy Fund Structure Ticker/Fund Code Investment Focus Risk Rating
Middlefield Real Estate Dividend ETF ETF TSX: MREL Diversified Global
Real Estate
Medium
Middlefield Real Estate Dividend Class Mutual Fund

A Series: MID 600

F Series: MID 601

Diversified Global
Real Estate
Medium
Middlefield Real Estate Split Corp. Split Share

A shares: RS

Preferred Shares: RS.PR.A

15-20 high
conviction REITs
Medium

 

Have Questions?

Whether you have specific investment inquiries or general questions about Middlefield, our team would be glad to help.

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Disclaimer

This material has been prepared for informational purposes only without regard to any particular user’s investment objectives or financial situation. This communication constitutes neither a recommendation to enter into a particular transaction nor a representation that any product described herein is suitable or appropriate for you. Investment decisions should be made with guidance from a qualified professional. The opinions contained in this report are solely those of Middlefield Limited (“ML”) and are subject to change without notice. ML makes every effort to ensure that the information has been derived from sources believed to reliable, but we cannot represent that they are complete or accurate. However, ML assumes no responsibility for any losses or damages, whether direct or indirect which arise from the use of this information. ML is under no obligation to update the information contained herein. This document is not to be construed as a solicitation, recommendation or offer to buy or sell any security, financial product or instrument.

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