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A Real Estate Investment Trust (REIT) is a company that owns and generally operates income-producing real estate. Property-types including apartments, shopping centers, offices, hotels and warehouses are primary examples. Some REITs also engage in financing real estate. Shares of a REIT are freely traded, usually on a major stock exchange. To qualify as a REIT, a company must distribute at least 90 percent of its taxable income via dividends to its shareholders, annually.
The U.S. Congress created REITs in 1960 to give the public similar opportunity to invest in large-scale commercial properties as existed for large investors. The REIT industry has grown dramatically in size and significance over the two past decades in particular. Approximately 200 REITs are registered with the Securities and Exchange Commission. Most companies listed for trading on the New York Stock Exchange.
We encourage investors to read the PREI Research Dept.'s research papers:
• Asian REITs: A New Dimension for Investors
• Global REITs: A New Platform of Ownership
• UK REITs-A Step in the Right Direction
• REITs: What Are They?
REITs are not partnerships. Although similar to other companies, REITs can often engage in joint ventures. Several major legal, financial and operational differences exist between REITs and limited partnerships.
Some of the major differences include: REITs offer superior oversight and corporate governance and are publicly traded and generally, more liquid. In REITs, lower minimum investments required and reinvestment plans often possible. REITs issue tax information via IRS form 1099, Partnerships issues K-1s. REITs (and other public companies) are required to utilize independent directors. REITs also require beneficial ownership of at least 100 shareholders, limiting possibility of minority control. REITs utilize leverage without incurring UBIT for tax-exempt accounts (making REITs suitable for individual IRAs, 401(k)s and pension plans. REITs can raise capital via additional offerings.
Homeownership and REITs have different return, supply and demand drivers, hence the correlations between the two is modest.
We encourage investors to read the PREI Research Dept.'s research papers:
• Homeownership and Commercial Real Estate: Similar but Different
Demographic growth and economic development outside of the U.S. are increasingly important considerations for investors.
We encourage investors to read the PREI Research Dept.'s research papers:
• Ask Not Why International, Ask Why Not International
• Global REITs: A New Platform of Ownership
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