Category Archives: REIT

Frequently Asked Questions About REITs | REIT.com

Frequently Asked Questions About REITs

A REIT, or real estate investment trust, is a company that owns or finances income-producing real estate. Below are answers to fundamental questions about REITs.

Why were REITs created?

Congress created REITs in 1960 to make investments in large-scale, income-producing real estate accessible to average investors through the purchase of equity. In the same way shareholders benefit by owning stocks of other corporations, the stockholders of a REIT earn a pro-rata share of the economic benefits that are derived from the production of income through real estate ownership.

 

How does a company qualify as a REIT?

To qualify as a REIT, a company must comply with certain provisions within the Internal Revenue Code.

 

What Types of REITs are there?

REITs often are classified in one of two categories: equity or mortgage. Equity REITs mostly own and operate income-producing real estate, such as shopping centers, health care facilities, apartments, warehouses, office buildings and hotels. Mortgage REITs mostly lend money directly to real estate owners and operators or extend credit indirectly through the acquisition of loans or mortgage-backed securities.

 

What types of properties do REITs own and manage?

REITs own and manage a variety of property types: shopping centers, health care facilities, apartments, warehouses, office buildings, hotels and others. Most REITs specialize in one property type only, such as shopping malls, timberlands, data centers or self-storage facilities.

Some REITs invest throughout the country or, in some cases, throughout the world. Others specialize in one region or even a single metropolitan area.

 

How many REITs are there?

The Internal Revenue Service shows that there are about 1,100 U.S. REITs that have filed tax returns.

As of Dec. 31, 2014, there were 216 REITs in the U.S. registered with the SEC that trade on one of the major stock exchanges—the majority on the NYSE. These REITs have a combined equity market capitalization of $907 billion.

 

Who invests in REITs?

Everyone. Individual investors of all ages, both in the U.S. and worldwide, invest in REITs. Other typical buyers of REITs include exchange-traded funds, pension funds, endowments, foundations, insurance companies and bank trust departments.

 

How do investors own REITs?

Investors own REITs directly or through REIT mutual funds.

The majority of REITs trade on major stock exchanges. Investors may invest in a publicly traded REIT by purchasing shares through a securities dealer. As with other publicly traded securities, investors may purchase common stock, preferred stock or debt securities.

REIT investors also can buy shares in a REIT mutual fund or exchange-traded fund.

 

What are the investment benefits of REITs?

REITs are total return investments. They typically provide high dividends plus the potential for moderate, long-term capital appreciation. Additionally, REITs offer liquidity, portfolio diversification and strong corporate governance.

 

What factors contribute to REIT earnings?

Growth in REIT earnings typically comes from several sources, including higher revenues, lower costs and new business opportunities.

 

How do REITs measure earnings?

The REIT industry uses net income as defined under Generally Accepted Accounting Principles (GAAP) as the primary operating performance measure. The REIT industry also uses funds from operations (FFO) as a supplemental measure of a REIT’s operating performance. NAREIT defines FFO as net income (computed in accordance with GAAP) excluding gains or losses from sales of most property and depreciation of real estate.

 

How do shareholders treat REIT dividends for tax purposes?

For REITs, dividend distributions for tax purposes are allocated to ordinary income, capital gains and return of capital, each of which may be taxed at a different rate.

 

What are the differences between stock exchange-listed REITs, public, non-listed REITs (PNLRs) and private REITs?

Stock exchange-listed REITs file with the Securities and Exchange Commission (SEC). Shares of their stock trade on national stock exchanges.

PNLRs file with the SEC. Shares of their stock do not trade on national stock exchanges.

Private REITs do not file with the SEC. Shares of their stock do not trade on national stock exchanges.

 

Do countries besides the United States have REITs?

Yes, a total of 31 countries currently have REITs. The majority of REIT laws around the world mirror the U.S. approach to REIT-based real estate investment.

 

via Frequently Asked Questions About REITs | REIT.com.

Types of REITs | REIT.com

 

Who manages a REIT?

Like other publicly traded companies, a REIT’s executive management team operates the company, deciding what properties it will own and manage. Management’s decisions are overseen by a board of directors that is responsible to the shareholders. As with other corporations, REIT directors are typically well-known and respected members of the real estate, business and professional communities. Many of today’s REITs became public companies within the past 20 to 25 years, often transforming to public ownership what previously had been private enterprises. In many cases, the majority owners of these private enterprises became the senior officers of the REIT and contributed their ownership positions to the REIT.

What types of properties do REITs own and manage?

REITs own and manage a variety of property types: shopping centers, health care facilities, apartments, warehouses, office buildings, hotels and others. Most REITs specialize in one property type only, such as shopping malls, timberlands, data centers or self-storage facilities.

Some REITs invest throughout the country or in some cases, throughout the world. Others specialize in one region only, or even in a single metropolitan area.

 

 

How are REITs different from partnerships?

REITs are not partnerships. Most publicly traded REITs are vertically integrated real estate companies that develop, own and actively manage commercial real estate. Shares in these companies are traded, the same as other stocks, on major exchanges, providing complete liquidity and market pricing. Publicly traded REITs are subject to the same financial disclosure requirements as other publicly traded companies. Independent corporate governance consultants have rated the REIT industry’s governance among the best of all U.S. industry groups.

 

 

How do REITs use partnerships?

Like other industries, the real estate industry, including REITs, often uses partnerships to co-venture with others. In addition, REITs are typically structured in one of three ways: the traditional REIT, the umbrella partnership REIT (UPREIT) and the DownREIT.

A traditional REIT is one that owns its assets directly rather than through an operating partnership.

In the typical UPREIT, a REIT partners with others, and the partnership is termed the “operating partnership.” In return for their respective contributions, the REIT as well as the other partners receive interests in the operating partnership called operating partnership units (OP units). The REIT typically is the general partner and the majority owner of the OP units. For the partners contributing property to the operating partnership, any capital gain tax liability is deferred until such time as the OP units are converted into common shares of the REIT.

After a period of time (often one year), the non-REIT partners may enjoy the same liquidity of the REIT shareholders by tendering their units for either cash or REIT shares (at the option of the REIT or operating partnership). This conversion may result in the partners incurring the tax liability that had been deferred at the UPREIT’s formation. However, the unitholders may tender their units over a period of time, thereby spreading out such tax. In addition, when a partner holds the units until death, the estate tax rules operate in such a way as to provide that the beneficiaries may tender the units for cash or REIT shares without paying income taxes.

A DownREIT is structured much like an UPREIT, but the REIT owns and operates properties other than its interest in a controlled partnership that owns and operates separate properties.

Characteristics of Publicly Traded, Non-Exhange Traded and Private REITs: Comparison Chart

via The Basics of REITs | REIT.com.

The Basics of REITs | REIT.com

The Basics of REITs

What is a REIT?

A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modeled after mutual funds, REITs provide investors of all types stable income streams, diversification and long-term capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.

REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries – through the purchase of stock. In the same way shareholders benefit by owning stocks in other corporations, the stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy or finance property. Learn more.

Why were REITs created?

Congress created REITs in 1960 to make investments in large-scale, income-producing real estate accessible to average investors. Congress decided that a way for average investors to invest in large-scale commercial properties was the same way they invest in other industries — through the purchase of equity. In the same way shareholders benefit by owning stocks of other corporations, the stockholders of a REIT earn a pro-rata share of the economic benefits that are derived from the production of income through commercial real estate ownership. REITs offer distinct advantages for investors: portfolio diversification, strong and reliable dividends, liquidity, solid long-term performance and transparency.

How does a company qualify as a REIT?

In order for a company to qualify as a REIT, it must comply with certain provisions within the Internal Revenue Code. As required by the Tax Code, a REIT must:

Be an entity that is taxable as a corporation

Be managed by a board of directors or trustees

Have shares that are fully transferable

Have a minimum of 100 shareholders

Have no more than 50 percent of its shares held by five or fewer individuals during the last half of the taxable year

Invest at least 75 percent of its total assets in real estate assets

Derive at least 75 percent of its gross income from rents from real property or interest on mortgages financing real property

Have no more than 25 percent of its assets consist of stock in taxable REIT subsidiaries

Pay annually at least 90 percent of its taxable income in the form of shareholder dividends

How many REITs are there?

As of Jan. 31, 2014, there were 204 REITs registered with the Securities and Exchange Commission in the United States that trade on one of the major stock exchanges — the majority on the New York Stock Exchange. These REITs have a combined equity market capitalization of $719 billion.

Additionally, there are REITs that are registered with the SEC but are not publicly traded, and REITs that are not registered with the SEC or traded on a stock exchange. Internal Revenue Service shows that there are about 1,100 U.S. REITs that have filed tax returns.

What Types of REITs are there?

The REIT industry has a diverse profile, which offers many investment opportunities. REITs often are classified in one of two categories: equity or mortgage.

Equity REITs:

Equity REITs mostly own and operate income-producing real estate. They increasingly have become real estate operating companies engaged in a wide range of real estate activities, including leasing, maintenance and development of real property and tenant services. One major distinction between Equity REITs and other real estate companies is that a REIT must acquire and develop its properties primarily to operate them as part of its own portfolio rather than to resell them once they are developed.

Mortgage REITs:

Mortgage REITs mostly lend money directly to real estate owners and operators or extend credit indirectly through the acquisition of loans or mortgage-backed securities. Today’s Mortgage REITs generally extend mortgage credit only on existing properties. Many mortgage REITs also manage their interest rate and credit risks using securitized mortgage investments, dynamic hedging techniques and other accepted derivative strategies.

via The Basics of REITs | REIT.com.

What is a REIT? | REIT.com

What is a REIT?

A REIT, or Real Estate Investment Trust, is a company that owns or finances income-producing real estate. Modeled after mutual funds, REITs provide investors of all types regular income streams, diversification and long-term capital appreciation. REITs typically pay out all of their taxable income as dividends to shareholders. In turn, shareholders pay the income taxes on those dividends.

 

REITs allow anyone to invest in portfolios of large-scale properties the same way they invest in other industries – through the purchase of stock. In the same way shareholders benefit by owning stocks in other corporations, the stockholders of a REIT earn a share of the income produced through real estate investment – without actually having to go out and buy or finance property.

Most REITs are traded on major stock exchanges, but there are also public non-listed and private REITs. The two main types of REITs are Equity REITs and Mortgage REITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. Mortgage REITs invest in mortgages or mortgage securities tied to commercial and/or residential properties.

Today, REITs are tied to almost all aspects of the economy, including apartments, hospitals, hotels, industrial facilities, infrastructure, nursing homes, offices, shopping malls, storage centers, student housing, and timberlands. REIT-owned properties are located in every state and support one million U.S. jobs annually.  U.S. REITs have become a model for REITs around the world, and now more than 30 countries around the world have adopted REIT legislation.

via What is a REIT? | REIT.com.

Real estate investment trust – Wikipedia, the free encyclopedia

Real estate investment trust

From Wikipedia, the free encyclopedia

A real estate investment trust (REIT) /ˈriːt/ is a company that owns, and in most cases, operates income-producing real estate. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and even timberlands. Some REITs also engage in financing real estate. Created by the U.S. Congress in 1960,[1] REITs were designed to provide a real estate investment structure similar to the structure mutual funds provide for investment in stocks.[2] REITs are strong income vehicles because REITs must pay out at least 90 percent of their taxable income in the form of dividends to shareholders.[3]

REITs can be publicly traded on major exchanges, public but non-listed or private.[3] The two main types of REITs are Equity REITs[4] and Mortgage REITs.[5] In November 2014, Equity REITs were recognized as a distinct asset class[6] in the Global Industry Classification Standard by S&P Dow Jones Indices and MSCI. The key statistics to examine in a REIT are net asset value (NAV), funds from operations (FFO), and adjusted funds from operations (AFFO).

 

REITs were created in the United States when President Dwight D. Eisenhower signed into law the REIT Act title contained in the Cigar Excise Tax Extension of 1960.[7] REITs were created by Congress in order to give all investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate in the same way they typically invest in other asset classes – through the purchase and sale of liquid securities.

Since then, more than 30 countries around the world have established REIT regimes, with more countries in the works. The spread of the REIT approach to real estate investment around the world has also increased awareness and acceptance of investing in global real estate securities.[8]

A comprehensive index for the REIT and global listed property market is the FTSE EPRA/NAREIT Global Real Estate Index Series,[9] which was created jointly in October 2001 by the index provider FTSE Group, the National Association of Real Estate Investment Trusts (NAREIT) and the European Public Real Estate Association (EPRA).

As of June 2014, the global index included 456 stock exchange listed real estate companies from 37 countries representing an equity market capitalization of about $2 trillion (with approximately 78% of that total from REITs).[10]

Evolution[edit]

Around the time of their creation in 1960, the first REITs primarily consisted of mortgage companies. The industry experienced significant expansion in the late 1960s and early 1970s. The growth primarily resulted from the increased use of mortgage REITs in land development and construction deals. The Tax Reform Act of 1976 authorized REITs to be established as corporations in addition to business trusts.

The Tax Reform Act of 1986 also impacted REITs. The legislation included new rules designed to prevent taxpayers from using partnerships to shelter their earnings from other sources. Three years later, REITs witnessed significant losses in the stock market.

Retail REIT Taubman Centers Inc. launched the modern era of REITs in 1992 with its creation of the UPREIT. In an UPREIT, the parties of an existing partnership and a REIT become partners in a new “operating partnership.” The REIT typically is the general partner and the majority owner of the operating partnership units, and the partners who contributed properties have the right to exchange their operating partnership units for REIT shares or cash.The industry struggled beginning in 2007 as the global financial crisis kicked in. In response to the global credit crisis, listed REITs responded by deleveraging (paying off debt) and re-equitizing (selling stock to get cash) their balance sheets. Listed REITs and REOCs raised $37.5 billion in 91 secondary equity offerings, nine IPOs and 37 unsecured debt offerings as investors continued to act favorably to companies strengthening their balance sheets following the credit crisis.

From the end of February 2009 through the end of October 2014, stock-exchange listed Equity REITs have posted total returns of 312% (28.4% per year) and all stock-exchange listed REITs have gained 295% (27.5% per year), outpacing the return of 217% (22.6% per year) in the broad stock market and 210% (22.1% per year) in large-cap stocks.[11]

via Real estate investment trust – Wikipedia, the free encyclopedia.

Real Estate Investment Trust (REIT) Definition | Investopedia

Real Estate Investment Trust – REIT

DEFINITION OF ‘REAL ESTATE INVESTMENT TRUST – REIT’

A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.

Equity REITs: Equity REITs invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents.

Mortgage REITs: Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or purchase existing mortgages or mortgage-backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.

Hybrid REITs: Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.

INVESTOPEDIA EXPLAINS ‘REAL ESTATE INVESTMENT TRUST – REIT’

Individuals can invest in REITs either by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Among other things, REITs invest in shopping malls, office buildings, apartments, warehouses and hotels. Some REITs will invest specifically in one area of real estate – shopping malls, for example – or in one specific region, state or country. Investing in REITs is a liquid, dividend-paying means of participating in the real estate market.

Need more details on the REIT? Read The REIT Way and Add Some Real Estate to Your Portfolio.

via Real Estate Investment Trust (REIT) Definition | Investopedia.