TORONTO ( TheStreet) -- Real estate investment trusts have been a staple in investors portfolios for many years. Their stability and income make them a natural fit for investors desiring both yield and capital appreciation. Too often, however, investors never look beyond their borders to find the "best of the best" investment.There are multiple reasons why many prefer to stay within the confines of their own borders: differing accounting standards, tax implications, legal/regulatory differences and, at times, the difficulty in monitoring one's positions.
- Diversity: In order for a REIT to produce consistent results, they must have a diverse portfolio - both geographically and by tenant.
- Occupancy: Occupancy is the life blood of a REIT as tenants create the net operating income and funds from operations.
- Leverage: While it is best for a REIT (or any company) to utilize leverage to increase returns, too much leverage increases the chance of financial distress. With a REIT, consideration must be paid to the use of mortgage debt relative to total debt as encumbered assets do not necessarily add a "safety cushion" for investors.
- Funds from operations: Ultimately, the product of the REITs operating performance has to show up in the REITs funds from operations.
- Distributions: At the end of the day, many REIT investors are income focused investors and the purpose of number 1 through 4 above is to ensure dividend stability and growth.