Real estate investment trust
Encyclopedia
A real estate investment trust or REIT (icon) is a tax
designation for a corporate entity investing in real estate
. The purpose of this designation is to reduce or eliminate corporate tax
. In return, REITs are required to distribute 90% of their taxable income
into the hands of investor
s. The REIT structure was designed to provide a real estate investment
structure similar to the structure mutual fund
s provide for investment in stock
s.
REITs can be publicly or privately held. Public REITs may be listed on public stock exchange
s.
REITs can be classified as equity
, mortgage
, or hybrid.
The key statistic
s to examine in a REIT are net asset value
(NAV), funds from operations (FFO), adjusted funds from operations (AFFO) and cash available for distribution (CAD). In the period from 2008 to this writing (2011), REITs face challenges from both a slowing United States economy and the global financial crisis, which depressed share values by 40 to 70 percent in some cases.
Eisenhower
signed the REIT tax provision contained in the Cigar Tax Excise Tax Extension in 1960.
). REITs which are listed on an exchange were known as Listed Property Trusts (LPTs) until March 2008, distinguishing them from private REITs which are known in Australia as Unlisted Property Trusts. They have since been renamed Australian Real Estate Investment Trusts (A-REITs) in line with international practice.
There are now more than 70 A-REITs listed on the ASX, with market capitalization in excess of A$100bn.
Australia is also receiving growing recognition as having the world’s largest REITs market
outside the United States. More than 12 percent of global listed property trusts can be found on the ASX.
and are not taxed if they distribute their net taxable income
to shareholders. REITs have been excluded from the income trust tax legislation passed in the 2007 budget
by the Conservative government. Many Canadian REITs have limited liability
. On December 16, 2010, the Department of Finance proposed amendments to the rules defining “Qualifying REITs” for Canadian tax purposes. As a result, “Qualifying REITs” are exempt from the new entity-level, “specified investment flow-through” (SIFT) tax that all publicly traded income trusts and partnerships are paying as of January 1, 2011.
Qualifications
is the largest French SIIC by market cap and the second largest publicly traded property company in France (after Fonciere des Regions
and Icade
), with the third highest asset value among European REITs.
is also planning to introduce German REITs (short, G-REITs) in order to create a new type of real estate investment vehicle. Government fears that failing to introduce REITs in Germany would result in a significant loss of investment capital to other countries. Nonetheless there still is political resistance to these plans, especially by the social democratic
party ('SPD'
).
A law concerning G-REITs was enacted 1 June 2007, and is retroactive
to 1 January 2007.
was launched by the Hong Kong Housing Authority
on behalf of the Government. Since 2005, there have been 7 REIT listings as at July 2007, most of which, including Sunlight REIT have not enjoyed success because of low yield. Except for The Link and Regal Real Estate Investment Trust, share prices of all but one are significantly below IPO
price. Hong Kong issuers' use of financial engineering (interest rate swap
s) to improve initial yields has also been cited as having reduced investors' interest
was formulating legislation for REITs in the Indian real estate market. Once introduced these Indian REITs (country specific/generic version I-REITs) will help individual investors enjoy the benefits of owning an interest in the securitised real estate market. The greatest benefit will be that of fast and easy liquidation of investments in the real estate market unlike the traditional way of disposing of real estate. The government and Securities and Exchange Board of India SEBI through various notifications is in the process of making it easier to invest in real estate in India directly and indirectly through foreign direct investment, through listed real estate companies and mutual funds.
, and most service providers of the J-REITs are Japanese real estate companies, Japanese conglomerates and foreign investment banks.
Since the burst of the real estate bubble
in 1990, property prices in Japan have seen steady drops through 2004, with some signs of price stabilization and possibly price increase in 2005 and 2006. Some see J-REITs as a way to increase investment in the real estate market, although notable increases in asset values have not yet been realized.
A J-REIT (a listed real estate investment trust) is strictly regulated under the Law concerning Investment Trusts and Investment Companies (the "LITIC") and established as an investment company under the LITIC.
In addition to REITs, Japanese law also provides for a parallel system of special purpose companies
which can be used for the securitization of particular properties on the private placement basis.
(SEC) issued the first set of guidelines for the registration and issuance of requirements for the operation of REITs in Nigeria as detailed in the Investment and Securities Act (ISA). The first REIT, the N50 billion Union Homes Hybrid Real Estate Investment Trust, was launched in September 2008.
is in the process of implementing a REIT regulatory framework that will allow full foreign ownership, free movement of capital and unrestricted repatriation of profits. It will curb speculation in Pakistani real estate markets and gives access to small investors who want to diversify into real estate. The Securities and Exchange Commission of Pakistan is proposing a regulatory framework similar to that of Singapore and Hong Kong.
The Securities and Exchange Commission of Pakistan expects that about six REITs will be licensed within the first year, mainly large asset management companies. Pakistan has recently seen an outflow of investments by foreign real estate development companies, mostly based in Malaysia and Dubai.
, the first one to be set up being CapitaMall Trust in July 2002. They represent a range of property sectors including retail, office, industrial, hospitality and residential. S-REITs hold a variety of properties in countries including Japan, China, Indonesia and Hong Kong, in addition to local properties.
S-REITs are regulated as Collective Investment Schemes under the Monetary Authority of Singapore's
Code on Collective Investment Schemes, or alternatively as Business Trusts.
S-REITs benefit from tax advantaged status.
development of REIT’s in the UAE by passing The Investment Trust Law No.5 that went into effect
of August 6, 2006. This restricts all 'true' REIT structures to be domiciled within the DIFC. The first REIT license to be issued will be backed by Dubai Islamic Bank with a REIT named 'Emirates REIT' headed up by the dot com entrepreneur, Sylvain Vieujot. The issue is that DIFC domiciled REIT's cannot acquire non-Freezone assets within the Emirate of Dubai. The only federally approved Freezone within the UAE is the DIFC itself so therefore we expect to see Emirates REIT focusing all of its attention within this zone. Outside of the zone properties are purchasable by local Gulf (GCC) passport holders only.
and came into effect in January 2007 when nine UK property companies converted to REIT status, including the five that were FTSE 100 members at that time: British Land
, Hammerson
, Land Securities, Liberty International
and Slough Estates (now known as "SEGRO"). The other four were: Brixton
(now known as "SEGRO"), Great Portland Estates
, Primary Health Properties
and Workspace Group
.
British REITs have to distribute 90% of their income. They must be a close-ended investment trust
and be UK resident and publicly listed on a stock exchange
recognised by the Financial Services Authority
.
To support the introduction of REITs in the UK, the REITs and Quoted Property Group was created by several commercial property and financial services companies. Other key bodies involved are the London Stock Exchange
the British Property Federation
and Reita. The Reita campaign was launched on 16 August 2006 by the REITs and Quoted Property Group, in order to provide a source of information on REITs, quoted property and related investments funds. Reita's aim is to raise awareness and understanding of REITs and investment in quoted property companies. It does this primarily through its portal [http://www.reita.org www.reita.org], providing knowledge, education and tools for financial advisers and investors.
Doug Naismith, managing director of European Personal Investments for Fidelity International, said: "As existing markets expand and REIT-like structures are introduced in more countries, we expect to see the overall market grow by some ten percent per annum over the next five years, taking the market to $1 trillion by 2010."
Tax
To tax is to impose a financial charge or other levy upon a taxpayer by a state or the functional equivalent of a state such that failure to pay is punishable by law. Taxes are also imposed by many subnational entities...
designation for a corporate entity investing in real estate
Real estate
In general use, esp. North American, 'real estate' is taken to mean "Property consisting of land and the buildings on it, along with its natural resources such as crops, minerals, or water; immovable property of this nature; an interest vested in this; an item of real property; buildings or...
. The purpose of this designation is to reduce or eliminate corporate tax
Corporate tax
Many countries impose corporate tax or company tax on the income or capital of some types of legal entities. A similar tax may be imposed at state or lower levels. The taxes may also be referred to as income tax or capital tax. Entities treated as partnerships are generally not taxed at the...
. In return, REITs are required to distribute 90% of their taxable income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
into the hands of investor
Investor
An investor is a party that makes an investment into one or more categories of assets --- equity, debt securities, real estate, currency, commodity, derivatives such as put and call options, etc...
s. The REIT structure was designed to provide a real estate investment
Investment
Investment has different meanings in finance and economics. Finance investment is putting money into something with the expectation of gain, that upon thorough analysis, has a high degree of security for the principal amount, as well as security of return, within an expected period of time...
structure similar to the structure mutual fund
Mutual fund
A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors to buy stocks, bonds, short-term money market instruments, and/or other securities.- Overview :...
s provide for investment in stock
Stock
The capital stock of a business entity represents the original capital paid into or invested in the business by its founders. It serves as a security for the creditors of a business since it cannot be withdrawn to the detriment of the creditors...
s.
REITs can be publicly or privately held. Public REITs may be listed on public stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
s.
REITs can be classified as equity
Ownership equity
In accounting and finance, equity is the residual claim or interest of the most junior class of investors in assets, after all liabilities are paid. If liability exceeds assets, negative equity exists...
, mortgage
Mortgage loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan...
, or hybrid.
The key statistic
Statistic
A statistic is a single measure of some attribute of a sample . It is calculated by applying a function to the values of the items comprising the sample which are known together as a set of data.More formally, statistical theory defines a statistic as a function of a sample where the function...
s to examine in a REIT are net asset value
Net asset value
Net asset value is a term used to describe the value of an entity's assets less the value of its liabilities. The term is most commonly used in relation to open-ended or mutual funds because shares of such funds registered with the U.S. Securities and Exchange Commission are redeemed at their net...
(NAV), funds from operations (FFO), adjusted funds from operations (AFFO) and cash available for distribution (CAD). In the period from 2008 to this writing (2011), REITs face challenges from both a slowing United States economy and the global financial crisis, which depressed share values by 40 to 70 percent in some cases.
History
REITs originated in the 1880s at a time when investors could avoid "double tax," or a tax at corporate and individual level. In the 1930s, this tax benefit was removed, causing investors to pay "double tax." PresidentPresident of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
Eisenhower
Dwight D. Eisenhower
Dwight David "Ike" Eisenhower was the 34th President of the United States, from 1953 until 1961. He was a five-star general in the United States Army...
signed the REIT tax provision contained in the Cigar Tax Excise Tax Extension in 1960.
Australia
The REIT concept was launched in Australia in 1971. General Property Trust was the first Australian real estate investment trust (LPT) on the Australian stock exchanges (now the Australian Securities ExchangeAustralian Securities Exchange
The Australian Securities Exchange was created by the merger of the Australian Stock Exchange and the Sydney Futures Exchange in July 2006. It is the primary stock exchange group in Australia....
). REITs which are listed on an exchange were known as Listed Property Trusts (LPTs) until March 2008, distinguishing them from private REITs which are known in Australia as Unlisted Property Trusts. They have since been renamed Australian Real Estate Investment Trusts (A-REITs) in line with international practice.
There are now more than 70 A-REITs listed on the ASX, with market capitalization in excess of A$100bn.
Australia is also receiving growing recognition as having the world’s largest REITs market
outside the United States. More than 12 percent of global listed property trusts can be found on the ASX.
Brazil
REITs were introduced in Brazil in 1993 by the law 8668/93 and initially ruled by the instruction 205/94 and, nowadays, by instruction 472/08 from CVM (Comissao de Valores Mobiliários - which is the Brazilian equivalent of SEC). Locally they are described as "FII"s or "Fundos de Investimento Imobiliário". FII's dividends have been free of taxes for personal investors (not companies) since 2006, but only for the funds which have at least 50 investors and that are publicly traded in the stock market. FIIs, referred to as “REIT” to correspond with the similar investment vehicle in the US, have been used either to own and operate independent property investments, associated with a single property or part property, or to own several real properties (multiple properties) funded through the capital markets.Bulgaria
REITs were introduced in Bulgaria in 2004 with the so called "Special Purpose Investment Companies Act". They are pass-through entities for corporate income tax purposes (i.e. they are not subject to corporate income tax), but are subject to numerous restrictions.Canada
Canadian REITs were established in 1993. They are required to be configured as trustsInvestment trust
An Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....
and are not taxed if they distribute their net taxable income
Taxable income
Taxable income refers to the base upon which an income tax system imposes tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. The amounts included as income, expenses, and other deductions vary by country or system. Many systems provide that...
to shareholders. REITs have been excluded from the income trust tax legislation passed in the 2007 budget
2007 Canadian federal budget
The Canadian federal budget for the 2007-2008 fiscal year was presented to the Canadian House of Commons by Finance Minister Jim Flaherty on March 19, 2007. The federal budget included $14 billion in new spending and $5.7 billion in tax cuts...
by the Conservative government. Many Canadian REITs have limited liability
Limited liability
Limited liability is a concept where by a person's financial liability is limited to a fixed sum, most commonly the value of a person's investment in a company or partnership with limited liability. If a company with limited liability is sued, then the plaintiffs are suing the company, not its...
. On December 16, 2010, the Department of Finance proposed amendments to the rules defining “Qualifying REITs” for Canadian tax purposes. As a result, “Qualifying REITs” are exempt from the new entity-level, “specified investment flow-through” (SIFT) tax that all publicly traded income trusts and partnerships are paying as of January 1, 2011.
Finland
Finnish REITs were established in 2010, when 'the tax exemption law' (Laki eräiden asuntojen vuokraustoimintaa harjoittavien osakeyhtiöiden verohuojennuksesta, 299/2009) was passed by the Finnish parliament. Together with the 'Law on Real Estate Funds' (Kiinteistörahastolaki, 1173/1997) it enables the existence of tax efficient residential REITs.Qualifications
- REITs will have to be established as a public listed company (julkinen osakeyhtiö, Oyj) for this specific purpose. When the REIT is established the minimum equity is 5M€ and it has to be distributed over 5 separate investors.
- Minimum holding period: 5 years.
- At least 80% of its assetAssetIn financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s have to be invested in residential real-estate. - At least 80% of the REIT's gross revenueRevenueIn business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
s must come from residential rental income. - At least 90% of the REIT's taxable income, excluding unrealised capital gains, has to be distributed to its shareholderShareholderA shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s through dividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s. - The corporation is income-tax-exempt, but the shareholders will have to pay individual income tax on the dividends.
- Largest individual shareholder may own less than 10% of company shares (max. 30% till the end of 2013).
France
The French acronym for REIT is SIIC. GecinaGecina
Gecina is a residential, office, and healthcare focused real estate investment trust. Its portfolio of properties also includes shopping malls, warehouses, and logistic centers responsible for coordinating commercial businesses such as those operating in business parks...
is the largest French SIIC by market cap and the second largest publicly traded property company in France (after Fonciere des Regions
Fonciere des Regions
Foncière des Régions is a holding company of real estate investment companies that own residential and commercial properties in 8 countries...
and Icade
Icade
Icade SA is a multinational investment company that is also a leader in property development services. It invests in various types of properties including both public and private...
), with the third highest asset value among European REITs.
Germany
GermanyGermany
Germany , officially the Federal Republic of Germany , is a federal parliamentary republic in Europe. The country consists of 16 states while the capital and largest city is Berlin. Germany covers an area of 357,021 km2 and has a largely temperate seasonal climate...
is also planning to introduce German REITs (short, G-REITs) in order to create a new type of real estate investment vehicle. Government fears that failing to introduce REITs in Germany would result in a significant loss of investment capital to other countries. Nonetheless there still is political resistance to these plans, especially by the social democratic
Social democracy
Social democracy is a political ideology of the center-left on the political spectrum. Social democracy is officially a form of evolutionary reformist socialism. It supports class collaboration as the course to achieve socialism...
party ('SPD'
Social Democratic Party of Germany
The Social Democratic Party of Germany is a social-democratic political party in Germany...
).
A law concerning G-REITs was enacted 1 June 2007, and is retroactive
Ex post facto law
An ex post facto law or retroactive law is a law that retroactively changes the legal consequences of actions committed or relationships that existed prior to the enactment of the law...
to 1 January 2007.
Qualifications
- REITs will have to be established as a corporation "REIT-AG" or "REIT-AktiengesellschaftAktiengesellschaftAktiengesellschaft is a German term that refers to a corporation that is limited by shares, i.e. owned by shareholders, and may be traded on a stock market. The term is used in Germany, Austria and Switzerland...
". - At least 75% of its assetAssetIn financial accounting, assets are economic resources. Anything tangible or intangible that is capable of being owned or controlled to produce value and that is held to have positive economic value is considered an asset...
s have to be invested in real-estate. - At least 75% of the G-REIT's gross revenueRevenueIn business, revenue is income that a company receives from its normal business activities, usually from the sale of goods and services to customers. In many countries, such as the United Kingdom, revenue is referred to as turnover....
s must be real-estate related. - At least 90% of the REIT's taxable income has to be distributed to its shareholderShareholderA shareholder or stockholder is an individual or institution that legally owns one or more shares of stock in a public or private corporation. Shareholders own the stock, but not the corporation itself ....
s through dividendDividendDividends are payments made by a corporation to its shareholder members. It is the portion of corporate profits paid out to stockholders. When a corporation earns a profit or surplus, that money can be put to two uses: it can either be re-invested in the business , or it can be distributed to...
s. - The corporation is income-tax-exempt, but the shareholders will have to pay individual income tax on the dividends.
- Some restrictions apply on establishing residential REIT's
Ghana
REITs have been in existence in Ghana since 1994. The Home Finance Company, now HFC BANK, established the first REIT in Ghana in August 1994. HFC Bank has been at the forefront of mortgage financing in Ghana since 1993. It has used various collective investment schemes as well as corporate bonds to finance its mortgage lending activities. Collective Investment Schemes, of which REIT’s are a part, are currently regulated by the Securities and Exchange Commission of Ghana.Hong Kong
REITs have been in existence in Hong Kong since 2005, when The Link REITThe Link REIT
The Link REIT is one of the world's largest REITs, or real estate investment trusts with assets of around US$3.3 billion....
was launched by the Hong Kong Housing Authority
Hong Kong Housing Authority
The Hong Kong Housing Authority is the main provider of public housing in Hong Kong. It was established in 1973 under the Housing Ordinance and is an agency of the Government of Hong Kong...
on behalf of the Government. Since 2005, there have been 7 REIT listings as at July 2007, most of which, including Sunlight REIT have not enjoyed success because of low yield. Except for The Link and Regal Real Estate Investment Trust, share prices of all but one are significantly below IPO
Initial public offering
An initial public offering or stock market launch, is the first sale of stock by a private company to the public. It can be used by either small or large companies to raise expansion capital and become publicly traded enterprises...
price. Hong Kong issuers' use of financial engineering (interest rate swap
Interest rate swap
An interest rate swap is a popular and highly liquid financial derivative instrument in which two parties agree to exchange interest rate cash flows, based on a specified notional amount from a fixed rate to a floating rate or from one floating rate to another...
s) to improve initial yields has also been cited as having reduced investors' interest
India
As of January 2010, IndiaIndia
India , officially the Republic of India , is a country in South Asia. It is the seventh-largest country by geographical area, the second-most populous country with over 1.2 billion people, and the most populous democracy in the world...
was formulating legislation for REITs in the Indian real estate market. Once introduced these Indian REITs (country specific/generic version I-REITs) will help individual investors enjoy the benefits of owning an interest in the securitised real estate market. The greatest benefit will be that of fast and easy liquidation of investments in the real estate market unlike the traditional way of disposing of real estate. The government and Securities and Exchange Board of India SEBI through various notifications is in the process of making it easier to invest in real estate in India directly and indirectly through foreign direct investment, through listed real estate companies and mutual funds.
Japan
Japan is one of a handful of countries in Asia with REIT legislation (other countries/markets include Hong Kong, Singapore, Malaysia, Taiwan and Korea), which permitted their establishment in December 2001. J-REIT securities are traded on the Tokyo Stock ExchangeTokyo Stock Exchange
The , called or TSE for short, is located in Tokyo, Japan and is the third largest stock exchange in the world by aggregate market capitalization of its listed companies...
, and most service providers of the J-REITs are Japanese real estate companies, Japanese conglomerates and foreign investment banks.
Since the burst of the real estate bubble
Real estate bubble
A real estate bubble or property bubble is a type of economic bubble that occurs periodically in local or global real estate markets...
in 1990, property prices in Japan have seen steady drops through 2004, with some signs of price stabilization and possibly price increase in 2005 and 2006. Some see J-REITs as a way to increase investment in the real estate market, although notable increases in asset values have not yet been realized.
A J-REIT (a listed real estate investment trust) is strictly regulated under the Law concerning Investment Trusts and Investment Companies (the "LITIC") and established as an investment company under the LITIC.
In addition to REITs, Japanese law also provides for a parallel system of special purpose companies
Special purpose company (Japan)
A is a type of corporation which can be formed under Japanese law. SPCs were enacted by the Diet of Japan in Law No. 105 of 1998.The main features of an SPC are:* An SPC can only be used for the...
which can be used for the securitization of particular properties on the private placement basis.
Nigeria
In 2007, the Securities and Exchange CommissionSecurities and Exchange Commission (Nigeria)
The Securities and Exchange Commission is the main regulatory institution of the Nigerian capital market.It is supervised by the Federal Ministry of Finance....
(SEC) issued the first set of guidelines for the registration and issuance of requirements for the operation of REITs in Nigeria as detailed in the Investment and Securities Act (ISA). The first REIT, the N50 billion Union Homes Hybrid Real Estate Investment Trust, was launched in September 2008.
Pakistan
The Securities and Exchange Commission of PakistanSecurities and Exchange Commission of Pakistan
The Securities and Exchange Commission of Pakistan is an autonomous body whose purpose is to develop a modern and efficient corporate sector and a capital market based on sound regulatory principles, in order to foster economic growth and prosperity in Pakistan.-History:The Securities and Exchange...
is in the process of implementing a REIT regulatory framework that will allow full foreign ownership, free movement of capital and unrestricted repatriation of profits. It will curb speculation in Pakistani real estate markets and gives access to small investors who want to diversify into real estate. The Securities and Exchange Commission of Pakistan is proposing a regulatory framework similar to that of Singapore and Hong Kong.
The Securities and Exchange Commission of Pakistan expects that about six REITs will be licensed within the first year, mainly large asset management companies. Pakistan has recently seen an outflow of investments by foreign real estate development companies, mostly based in Malaysia and Dubai.
Philippines
REITs in the Philippines will soon be available to the public after the Real Estate Investment Trust Act of 2009 (RA 9856) passed into law on December 17, 2009. Its Implementing Rules and Regulations were approved by the Securities and Exchange Commission in May 2010.Singapore
Commonly referred to as S-REITs, there are currently 20 REITs listed on the SGXSingapore Exchange
Singapore Exchange Limited is an investment holding company located in Singapore and providing different services related to securities and derivatives trading and others. SGX is a member of the World Federation of Exchanges and the Asian and Oceanian Stock Exchanges FederationSingapore Exchange...
, the first one to be set up being CapitaMall Trust in July 2002. They represent a range of property sectors including retail, office, industrial, hospitality and residential. S-REITs hold a variety of properties in countries including Japan, China, Indonesia and Hong Kong, in addition to local properties.
S-REITs are regulated as Collective Investment Schemes under the Monetary Authority of Singapore's
Monetary Authority of Singapore
The Monetary Authority of Singapore is Singapore's central bank and financial regulatory authority...
Code on Collective Investment Schemes, or alternatively as Business Trusts.
S-REITs benefit from tax advantaged status.
United Arab Emirates
The REIT legislation was introduced by Dubai International Financial Centre (DIFC) to promote thedevelopment of REIT’s in the UAE by passing The Investment Trust Law No.5 that went into effect
of August 6, 2006. This restricts all 'true' REIT structures to be domiciled within the DIFC. The first REIT license to be issued will be backed by Dubai Islamic Bank with a REIT named 'Emirates REIT' headed up by the dot com entrepreneur, Sylvain Vieujot. The issue is that DIFC domiciled REIT's cannot acquire non-Freezone assets within the Emirate of Dubai. The only federally approved Freezone within the UAE is the DIFC itself so therefore we expect to see Emirates REIT focusing all of its attention within this zone. Outside of the zone properties are purchasable by local Gulf (GCC) passport holders only.
United Kingdom
The legislation laying out the rules for REITs in the United Kingdom was enacted in the Finance Act 2006Finance Act 2006
The Finance Act 2006 is an Act of the Parliament of the United Kingdom prescribing changes to Excise Duties; Value Added Tax; Income Tax; Corporation Tax; and Capital Gains Tax...
and came into effect in January 2007 when nine UK property companies converted to REIT status, including the five that were FTSE 100 members at that time: British Land
British Land
The British Land Company plc is one of the largest property development and investment companies in the United Kingdom. The firm switched to Real Estate Investment Trust status when REITs were introduced in the United Kingdom in January 2007. It is headquartered in London...
, Hammerson
Hammerson
Hammerson plc is a major British property development and investment company. The firm switched to Real Estate Investment Trust status when REITs were introduced in the United Kingdom in January 2007. It is traded on the London Stock Exchange and is a constituent of the FTSE 100 Index...
, Land Securities, Liberty International
Liberty International
Liberty International plc was a British property investment company. It switched to Real Estate Investment Trust status when REITs were introduced in the United Kingdom in January 2007...
and Slough Estates (now known as "SEGRO"). The other four were: Brixton
Brixton plc
Brixton plc is a British-based property business headquartered in London. It is a former constituent of the FTSE 250 Index. The firm switched to Real Estate Investment Trust status when REITs were introduced in the United Kingdom in January 2007.-History:...
(now known as "SEGRO"), Great Portland Estates
Great Portland Estates
Great Portland Estates plc is a British property development and investment company. It is listed on the London Stock Exchange and is a constituent of the FTSE 250 Index...
, Primary Health Properties
Primary Health Properties
Primary Health Properties plc is a British-based real estate investment trust, specialising in the rental of primary healthcare facilities within the United Kingdom. The company was incorporated in 1995, floated on the Alternative Investment Market in 1996, and listed on the London Stock Exchange...
and Workspace Group
Workspace Group
Workspace Group plc is a real estate investment trust based in London, England. Founded in 1987 by the privatisation of property assets of the former Greater London Council, the company lets office, industrial and workshop space to small and medium-sized enterprises...
.
British REITs have to distribute 90% of their income. They must be a close-ended investment trust
Investment trust
An Investment trust is a form of collective investment found mostly in the United Kingdom. Investment trusts are closed-end funds and are constituted as public limited companies....
and be UK resident and publicly listed on a stock exchange
Stock exchange
A stock exchange is an entity that provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and...
recognised by the Financial Services Authority
Financial Services Authority
The Financial Services Authority is a quasi-judicial body responsible for the regulation of the financial services industry in the United Kingdom. Its board is appointed by the Treasury and the organisation is structured as a company limited by guarantee and owned by the UK government. Its main...
.
To support the introduction of REITs in the UK, the REITs and Quoted Property Group was created by several commercial property and financial services companies. Other key bodies involved are the London Stock Exchange
London Stock Exchange
The London Stock Exchange is a stock exchange located in the City of London within the United Kingdom. , the Exchange had a market capitalisation of US$3.7495 trillion, making it the fourth-largest stock exchange in the world by this measurement...
the British Property Federation
British Property Federation
British Property Federation is a membership organisation that promotes the interests of companies those involved in property ownership and investment. It was incorporated in 1963 as a limited company...
and Reita. The Reita campaign was launched on 16 August 2006 by the REITs and Quoted Property Group, in order to provide a source of information on REITs, quoted property and related investments funds. Reita's aim is to raise awareness and understanding of REITs and investment in quoted property companies. It does this primarily through its portal [
Doug Naismith, managing director of European Personal Investments for Fidelity International, said: "As existing markets expand and REIT-like structures are introduced in more countries, we expect to see the overall market grow by some ten percent per annum over the next five years, taking the market to $1 trillion by 2010."
United States
In the United States, a REIT is a company that owns, and in most cases operates, income-producing real estate. Some REITs finance real estate. To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.Qualifications
In order to qualify for the advantages of being a pass-through entity for U.S. corporate income tax, a REIT must:- Be structured as a corporation, trust, or association
- Be managed by a board of directors or trustees
- Have transferable shares or transferable certificates of interest
- Otherwise be taxable as a domestic corporation
- Not be a financial institution or an insurance company
- Be jointly owned by 100 persons or more
- Have 95 percent of its income derived from dividends, interest, and property income
- Pay dividends of at least 90% of the REIT's taxable income
- Have no more than 50% of the shares held by five or fewer individuals during the last half of each taxable year (5/50 rule)
- Have at least 75% of its total assets invested in real estate
- Derive at least 75% of its gross income from rents or mortgage interest
- Have no more than 20% of its assets invested in taxable REIT subsidiariesTaxable REIT subsidiariesTaxable REIT Subsidiaries allow real estate investment trusts to more effectively compete with other real estate owners. They do this by providing services to tenants or third parties such as landscaping, cleaning or concierge, and they provide new earnings growth opportunities.-United...
.
See also
- Australian real estate investment trust
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- Taxable REIT subsidiariesTaxable REIT subsidiariesTaxable REIT Subsidiaries allow real estate investment trusts to more effectively compete with other real estate owners. They do this by providing services to tenants or third parties such as landscaping, cleaning or concierge, and they provide new earnings growth opportunities.-United...