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Stability of REITs

Real estate investment trusts must adhere to stringent leverage and financial reporting criteria. These regulations lead to steady cash distributions, conservative portfolio management, and transparent communication with REIT investors. Of course, Canadian REITs are not solely structured for stability, first and foremost, REITs are structured to succeed.

A variety of factors contribute to the stability of REITs, such as:

  • Conservative Leverage: The Declaration of Trust sets out a maximum debt capacity for the REIT.
  • Professional Management: Investors benefit from professional management of the portfolio and the underlying properties – often a hybrid of asset management acumen and industry-specific operational expertise.
  • Regulatory Requirements: Similar to any public company, REITs are required to comply with securities legislation and the rules of the applicable stock exchanges including those of continuous disclosure, insider trading and the sale of units.
  • Board of Trustees: In keeping with the principles of good corporate governance, the Board of Trustees (including independent or unrelated Trustees), governs the operations of the REIT, approving key decisions such as change in management, acquisitions and dispositions, the assumption or granting of mortgages and the granting of options under an option plan.
  • Steady Distributions: REITs are required to distribute virtually all distributable income to unit holders. Monthly or quarterly distributions are intended to be steady and increasing overtime as the REIT and its profitability grow. Yields are typically more attractive than on debt investments.

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