{"id":1218,"date":"2012-07-21T08:30:17","date_gmt":"2012-07-21T08:30:17","guid":{"rendered":"http:\/\/www.knowfinance.com\/?p=1218"},"modified":"2012-07-21T08:30:17","modified_gmt":"2012-07-21T08:30:17","slug":"real-estate-investment-trust","status":"publish","type":"post","link":"https:\/\/www2.stockmarketwatch.com\/learn\/real-estate-investment-trust\/","title":{"rendered":"Real Estate Investment Trust"},"content":{"rendered":"

A real estate investment trust or REIT is a financial product that is traded like a stock on the major stock exchanges and invests in real estate market directly, either through equities or mortgages.<\/p>\n

The rationale behind investing in REIT is reducing or eliminating corporate tax. In return, REITs are obliged to dispense 90% of their taxable\u00a0income\u00a0into the hands of\u00a0investors.<\/p>\n

The REIT structure was intended to create a real estate\u00a0investment structure similar to the structure like mutual funds\u00a0\u2013which offer for investment in\u00a0stocks.<\/p>\n

REITs can be sold both publicly or privately. Public REITs are also listed on public\u00a0stock exchanges.<\/p>\n

REITs can be categorized as\u00a0equity,\u00a0mortgage, or a hybrid.<\/p>\n

Statistics that help in evaluating REIT are\u00a0net asset value\u00a0(NAV), funds from operations (FFO), adjusted funds from operations (AFFO) and cash available for distribution (CAD).<\/p>\n

From 2008 to 2011, REITs had to face lots of challenges from both \u00a0stalling United States economy and the\u00a0aftereffects of subprime mortgage and financial crisis, which resulted in share values drop 40 to 70 percent in some cases.<\/p>\n

History<\/p>\n

The origination of real estate investment trusts dates back to 1880s at a time when investors could avoid\u00a0double taxation. \u00a0Then later in the 1930s, this tax benefit was abolished, as a result, investors were made to pay “double tax.”\u00a0 In 1960, President\u00a0Eisenhower\u00a0signed the REIT tax provision contained in the Cigar Tax Excise Tax Extension.<\/p>\n

REIT By Countries<\/p>\n

Australia<\/p>\n

The REIT concept was introduced in Australia in 1971. General Property Trust was the first\u00a0Australian real estate investment trust\u00a0(LPT) which was listed on the Australian stock exchanges now called as Australian Securities Exchange. \u00a0Until March 2008, REITs listed on an exchange were referred as Listed Property Trusts (LPTs), which were different from private REITs known as Unlisted Property Trusts. Later publicly traded real estate funds were renamed Australian Real Estate Investment Trusts (A-REITs) in line with international practice.<\/p>\n

By 2011, there were more than 70 A-REITs listed on the ASX, having market capitalization in excess of A$100bn.<\/p>\n

Australia is fast becoming as world\u2019s largest REITs market, just behind the United States. Over 12 percent of global listed property trusts are traded on the ASX.<\/p>\n

Brazil<\/strong><\/p>\n

REITs were launched in Brazil in 1993 by the law 8668\/93 and to begin with, they were ruled by the instruction 205\/94 and, nowadays, by instruction 472\/08 from CVM (Comissao de Valores Mobiliarios – which is the Brazilian equivalent of SEC).<\/p>\n

In Brazil they are known as “FII”s or “Fundos de Investimento Imobiliario”.\u00a0 Since 2006, dividends earned on FII are tax free for personal investors (not companies), but it is applicable on those funds which have minimum 50 investors and that are publicly traded in the stock market.<\/p>\n

Canada<\/strong><\/p>\n

REITs in Canada were introduced in 1993. Canadian REITs are required to be organized as\u00a0trusts\u00a0and are not taxed if they allocate their net\u00a0taxable income\u00a0to shareholders. REITs have been exempted from the income trust tax legislation passed in the\u00a02007 budget\u00a0by the Conservative government.<\/p>\n

Most Canadian REITs have\u00a0limited liability.\u00a0On December 16, 2010, the Department of Finance suggested changes to the rules defining \u201cQualifying REITs\u201d for Canadian tax purposes. Accordingly, \u201cQualifying REITs\u201d are excluded from taxation. It has the new entity-level, \u201cspecified investment flow-through\u201d (SIFT) that tax \u00a0all publicly traded income trusts and partnerships trusts as of January 1, 2011.<\/p>\n

Finland<\/strong><\/p>\n

Finnish REITs were launched in 2010, when ‘the tax exemption law’ (Laki eraiden asuntojen vuokraustoimintaa harjoittavien osakeyhti\u00f6iden verohuojennuksesta, 299\/2009)\u00a0was legislated by the Finnish parliament. Along with the ‘Law on Real Estate Funds’ (Kiinteistorahastolaki, 1173\/1997)\u00a0it facilitates the trading of tax efficient residential REITs.<\/p>\n

Criteria <\/strong><\/strong><\/p>\n