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► Background to REITS
The Chancellor has published a consultation paper on more opportunities for small investors to participate in the property market see:-
He is modeling his proposals on the US Real Estate Investment Trusts or REITs.
The following information about US REITs is sourced from the US and in particular the REITnet web site:- http://www.reitnet.com/reits101/ and The Solution Organisation Briefing Note 016 www.thesolutionorganisation.com
A REIT is a company that buys, develops, manages and sells real estate assets. REITs allow participants to invest in a professionally-managed portfolio of real estate properties. REITs qualify as pass-through entities, companies who are able distribute the majority of income cash flows to investors without taxation at the corporate level (providing that certain conditions are met).
As pass-through entities, whose main function is to pass profits on to investors, a REIT's business activities are generally restricted to generation of property rental income. Another major advantage of REIT investment is its liquidity (ease of liquidation of assets into cash), as compared to traditional private real estate ownership which are not very easy to liquidate.
One reason for the liquid nature of REIT investments is that its shares are primarily traded on major exchanges, making it easier to buy and sell REIT assets/shares than to buy and sell properties in private markets.
Today, there are over 300 publicly traded REITs operating in the United States their assets total over $300 billion. Approximately two-thirds of these trade on the national stock exchanges.
In order for a corporation to qualify as a REIT and gain the advantages of being a pass-through entity free from taxation at the corporate level, it must comply with the following Internal Revenue Code provisions:
• Structured as Corporation, business trust, or similar association
• Managed by a board of directors or trustees
• Shares need to be fully transferable
• Minimum of 100 shareholders
• Pays dividends of at least 90 percent of REIT's taxable income
• No more than 50 percent of the shares can be held by five or fewer individuals during the last half of each taxable year
• At least 75 percent of total investment assets must be in real estate
• Derive at least 75 percent of gross income from rents or mortgage interest
• No more than 20 percent of its assets can be stocks in taxable REIT subsidiary
REITs fall into three broad categories:
Individual REITs are able to distinguish themselves by specialization. REITs may focus their investments geographically (by region, state, or metropolitan area), or in property types (such as retail properties, industrial facilities, office buildings, apartments or healthcare facilities). Certain REITs choose a broader focus, investing in a variety of types of property and mortgage assets across a wider spectrum of locations.
► The current REIT industry's investment choices can be broken down by property type as follows:
► The current REIT industry's investment choices can be broken down by property type as follows:
Equity REITs: (96.1%)
Mortgage REITs: (1.6%)
Hybrid REITs: (2.3%)
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 deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or invest in (purchase) existing mortgages or mortgage backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans.
Hybrid REITs combine the investment strategies of Equity REITs and Mortgage REITs by investing in both properties and mortgages.
The Joint Equity Scheme is for first-time buyers, home owners and property investors. This site is developed and maintained by Joint Equity ltd. ©Joint Equity (2007)
Joint Equity Ltd works with Mortgage Beaters Ltd to provide case studies & Illustrations to prospective Owner-Partners & Investor-Partners. Joint Equity Ltd does not carry out any regulated activities and so is not regulated by the FSA (Financial Services Authority). Joint Equity Ltd are introducer appointed representatives of Mortgage Beaters Ltd, which are authorised and regulated by the Financial Services Authority.
The content of this website is accurate to the best of our knowledge and for information only. We do not provide financial advice.