Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts (REITs)

Brief Excerpt from Industry Overview Chapter:

Companies in this industry primarily own and manage income-producing real estate such as retail, office, industrial, and multifamily residential buildings. Major US companies include American Tower Corporation, Equity Residential, Host Hotels & Resorts, Simon Property Group, and Vornado Realty Trust; major international companies include H&R REIT (Canada), Icade (France), Landsec (UK), Link REIT (Hong Kong), and Stockland (Australia).

COMPETITIVE LANDSCAPE

The health of the economy drives demand for REITs as investment vehicles. Profitability depends on the value of the properties in the portfolio, which in turn, highly depends on real estate vacancy rates, supply, and competition from other available space. Large companies have advantages in deal-making, and economies of scale in marketing, computer and infrastructure investment, and operations. Smaller companies can compete by specializing not only in real estate type, but also in local markets.

PRODUCTS, OPERATIONS & TECHNOLOGY

REITs are corporations that derive most of their revenue from owning or managing real estate, or from interest earned from mortgages secured by real estate. A company organized as a REIT under Internal Revenue Service (IRS) regulations can avoid paying corporate taxes if it pays out at least 90% of its taxable income (excluding capital gains) as dividends to shareholders. The benefit of being a REIT is that corporate income is not taxed; the disadvantage is that the company cannot fund growth with retained earnings. Many REITs have been exploring the cash-saving technique of declaring a dividend partly in cash...