The primary exit rule is to sell REITs or funds if needed during rebalancing. Certain REITs or funds will likely become overweight, while others will become underweight. When rebalancing, the objective is to sell the overweight portion of a REIT and use the proceeds to buy the underweight portion of the other REIT. The same holds true for REIT funds.
Like with dividend stocks, investors need to watch for “deal breakers”—these are changes to a company that might cause investors to sell an entire REIT position and look for an alternative. The two deal breakers are if a REIT reduces its dividend or experiences a major change in its capital structure.
Deal breakers
Examples of the latter are if a REIT exceeds 100% D/A, or issues a secondary stock offering without accompanying growth. These can signal financial stress. Check for these deal breakers during your periodic rebalancing.
