Hypothetical Illustration of How REITs Work

A non-traded REIT is a type of investment structure that offers the benefits of professionally managed real estate to individual investors. Investors purchase shares in non-traded REITs, which use the funds to acquire real estate and, to a lesser extent, invest in real estate-related assets. The REIT’s intention is for its real estate holdings to generate revenue in the form of rental income from tenants, interest payments or property operating income. The REIT passes the taxable income back to its investors through regular distributions. Please note that initial distributions will not be fully covered by cash flows from operating activities and will be paid from expense waivers, borrowings and offering proceeds. To maintain REIT tax status, at least 90 percent of the REIT's income must be distributed to its investors.


 

There is no assurance the stated objectives will be met.
Non-traded REITs are complex and varied. Please read the REIT’s prospectus carefully. In the early stages of a REIT, the investment typically exhibits greater risks which includes: few or no properties, limited operating history, has not yet elected or qualified as a REIT to obtain lower portfolio taxes to improve shareholder returns. Due to the high levels of investment costs and fees incurred with the REIT, early distributions will not be fully covered by cash flows from operating activities and will be paid from expense waivers, borrowings and offering proceeds. After the REIT has a couple of years operating history, the majority, if not all of the distributions should be covered by cash flow from operations. The REIT’s limited redemptions and distributions are not guaranteed and subject to suspension, modification or termination by the REIT at any time. During the middle stages of the REIT's life cycle, leverage will typically increase and shareholders’ votes are typically limited to a rare vote on major portfolio changes and members of the board of directors, as detailed in the prospectus and proxy. The REIT’s management team and board of directors exercise independence over managing the portfolio’s investments.