Overview of REITS
REITS is a special company that mainly owns and in most cases operates income-producing real estate such as apartments, shopping centers, office hotels and warehouses. Some REITS also engage in financing real estates. The shares of many REITS are traded on major stock exchanges for example Boston Properties Inc., General Growth Properties, Inc., Acadia Realty Trust …; on the other hand, many REITs are public non-listed and private REITs. There are very strict requirement for a company to qualify as a REIT. The items listed below are some of the basic requirement of REITs:
• Organize as a Corporation, business trust or similar association
• Be managed by a board of directors or trustees
• Have shares that are fully…show more content… As a result, their main source of income comes from the interest on these investments or by the sales of mortgages. Hybrid REITs are a combination of both equity and mortgage REITs.
In 1974, there were an even number of REITs between three types 12 equity, 12 Mortgage and 10 Hybrid; however, in 2006, the number of equity REITs increased to significant number (138) while there were 38 Mortgage REITs. On the other hand, the number of Hybrid REITs had reduced to only 7. Due to the recent financial crisis, the number of REITs in 2008 reduced to a total of 136 with 113 of them are Equity, 20 are Mortgage and only 3 Hybrid. As of 2014, due to the recovery of the US economy, the number of REIT increased to 216. Among those, 177 are Equity REITs, 39 are Mortgage while there are no Hybrid REITs.
REITs offer investors a number of benefits including:
• Simple tax treatment: REITs do not pay taxes at the corporate level; only investor’s dividends are taxed as ordinary income, capital gain or return of capital
• Diversification: the average performance of REIT has been more or less equal to US common stocks; however, the correlation of the long term return has been varied. This correlation would prove to be benefit for investors over the past 20 years; in addition, REITs gives investors an opportunity to invest in income-producing real estate without owning the actual property
• Dividends: Stock exchange listed REITs provide a consistent stream of income to investors due to one