Whitepaper August 2014

The Case for

Real Estate


By combining the benefits of commercial real estate ownership with the features of publicly traded stocks, real estate securities offer investment characteristics that we believe make a compelling case for the asset class.

Executive Summary (for the full report, click here)

Strong historical total returns
Real estate securities have consistently produced strong returns relative to other equities and fixed-income securities, benefiting from a business model focused on generating stable and growing cash flows. As an investment in tangible assets, real estate securities also benefit from barriers to competition and property values that tend to rise with inflation.

Dividend income and growth potential
Historically, real estate securities have offered above-average dividend yields due in large part to the minimum distribution requirement for companies structured as REITs (real estate investment trusts). REITs also have a history of consistently raising their dividends, resulting from cash flow growth that can come organically from rising rents and occupancies, or externally from development and acquisitions.

Public equity markets provide a high level of liquidity, distinguishing real estate securities from the relative illiquidity of the properties they own. This distinction is critical, as it enables investors to efficiently access and manage their capital, obtain daily market-cleared prices and adjust their investment allocations to take advantage of attractive opportunities.

Transparency and corporate governance
Publicly traded real estate companies are subject to the discipline and regulations of public markets, including audited financial statements and oversight by a board of directors or trustees. Direct real estate investments generally do not offer the same transparency or governance standards, especially in global markets.

Diversification by country and property type
A portfolio of real estate securities may represent thousands of properties around the world, making it possible to diversify assets across geographic regions and property sectors. This diversification can help reduce risk at the property level, while providing access to a wide range of property markets with different return profiles and cycles.

Participation in local economies
Real estate securities typically derive a large portion of their income from properties within their home country. This makes them one of the most direct ways to participate in the growth of a local economy, providing a sharp contrast to many multinational corporations, which have more global revenue streams.

Value creation by company managements
Management teams of public real estate companies may pursue acquisitions, disposals and development activities, which have the potential to add value for shareholders In this paper, we will put each of these features and potential benefits into perspective.

The content above is a summary of the full report.
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