Real Estate Investment Trusts - I
Introduction to the most popular investment vehicle
1. Foundations, structure and history of REITs
REITs are a specialized type of real estate investment vehicle that allow
to invest in large-scale income producing real estate without having to
acquire, manage or finance properties directly. They are today an
important part of the real estate investment landscape
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2. Key structural elements of REITs
• Asset focus: REITs must primarily invest in real estate assets, either directly by owning any type of
property or indirectly by holding mortgages or mortgage-backed securities
• Income distribution: REITs are required by law to distribute a high % of their taxable income to
shareholders in the form of dividends. This makes the vehicle attractive for income-seeking investors. This
%varies from one country to the other: 90% in USA; 95% in France, 100% in Japan; 80% in Spain
• Corporate structure: most of the REITs are structure as Corporate and some of them are Trusts. Most
of them are publicly listed (equity REITs)
• Diversifications: REITs must meet some diversification requirements in terms of portfolio concentration
• Management: it changes from one REIT to another, sometimes they outsource partial or totally the
management team of the portfolio
• Liquidity: Real estate investments are not clearly liquid as it is more difficult and costly to sell them than
stocks
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2. Key structural elements of REITs
• REITs mitigate operational risks as they are as they are an efficient alternative to real estate
direct investment allowing individual and institutional investors to build well diversified portfolios along
all asset classes and lying on professional teams
• REITs reduce financial risks as they give the opportunity to better structure financial operations to
acquire real estate assets since the scale of the portfolio, accumulated value, experience of the team and
best relationships with financial sources is much higher
• REITs reduce liquidity risks as they are listed in organized stock markets making investment in
real estate more accessible to particular investors and the public in general and making also easier to buy
and to sell
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3. History of REITs
• USA:
1960: Congress passed the Real Estate Investment Trust Act
1971: First REIT went public on the NY Stock Exchange
1986: Tax Reform Act established the current REIT taxation
1992: NAREIT was founded
2001: REITs were added to the S&P 500 Index
• France: The National Assembly passed a law in 2003 to create the French version of REITs (Sociétés
d’Investissement Immobilier Cotées)
• UK: UK introduced REITs as a new real estate investment vehicle in 2007. They are structured very similar
to those of the USA
• Spain: Congress passed a law in 2009 for the creation of SOCIMIs. This law has been improved in 2012 to
make Spanish vehiclews more competitive
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4. Main role and purpose of REITs
• Providing accessible Real Estate investment: 140 million americans invest in REITs
• Portfolio diversification along all asset classes: investors normally look for specialized REITs as
they prefer to do themselves the asset allocation
• Regular income through mandatory distribution of benefits: thought for income oriented
investors
• Stimulates Real Estate investments through the sale of stocks to raise capital
• REITs ensure the turnover of assets from one hand to the other
• Transparency and disclosure: most of the REITs are public companies listed in organized stock
markets so they have the obligation to comply with Abuse market regulations
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5. Types of REITs
• By the type of assets they hold:
equity REITs
mortgage REITs
and Hybrid REITs
• If they are traded in an stock exchange or not:
publicly traded
private REITs
• By asset class:
Residential hospitality
Offices retail and commercial real estate
industrial alternative assets
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6. REITs vs other Real Estate investment vehicles
• Scale and size
• Professional team
• Accountability
• Improved Taxation
• Easier to make corporate mergers and acquisitions
• Corporate governance
• Easier to comply with changes in regulation
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7. The general structure of a REIT
REIT Management Contract:
Fixed & Variable Remuneration
Board of Directors Asset Managers
Management Direction Committee
Property Mgrs.
INVESTMENT Shareholders
• Institutional Investors
INVESMENT EQUITY • Individual Investors
DIVIDENDS
• Financial facility Bank
• Others
ASSETS
FINANCING EEFF / Funds providers
RENTS
DEBT INTERESTS
RE Appraiser
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8. Process of listing a REIT
Asking for the REIT Announcement IPO of the
regime of going public Company
COMPANY PRE-
ADMISSION PUBLICLY TRADED
FOUNDATION ADMISSION
Asset
Acquisitions Financing Acquisitions Financing Disposals
contribution
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Real Estate Investment Trusts - I
Introduction to the most popular investment vehicle