The Role of Real Estate Investment Trusts (Reits)

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A Real Estate Investment Trust (REIT) is a corporation whose principal business is to own and manage properties. REITs make their profits from the rental or lease of homes and land, and from interest and profits derived on the sale of real estate. The assets consist primarily of property, interests in other real estate companies and mortgage loans.

Cash and cash equivalents generally account for only a small share of total trust assets. The amount of the minimum distribution is regulated by law. The span ranges from eighty to hundred percent of the reported profit.

The purpose of the REIT recovery is to benefit the shareholders, ultimately, at the liquidation of assets as well as recovery of capital they originally invested. The dividend yield of REITs is about 150 – 50 basis points above the 10-year yield on government bonds. The risk profile of REIT shares is between government bonds and direct investment in real estate.

REITs listed shares, however, have a risk profile which bears a variation of shares. With an investment in REITs, investors can combine the security of a relatively constant cash flow with the possibility of a relatively quick and cheap exit. REITs are particularly suitable for institutional investors (such as insurance and pension funds) with moderate risk/return profile. In developed countries, the proportion of such REIT investors is about two-thirds.

REITs are only in exceptional cases, required to redeem units. Shareholders are referred to the sale on the exchange. The life of a REIT recovery is generally set at around 15 years.

During the term of depreciation, the rate of standard deduction on property income is reduced from 14% to 6%, improvement expenses are deductible under the conditions of ordinary law. And spending on reconstruction and expansion for which a subscription has not been opened are not eligible for a deduction for depreciation.

The granting of this benefit is however subject to the condition that 95% of the subscription, valued without considering the cost of collection, is used exclusively to finance the acquisition of new properties or the future state of completion. As well as the commitment to the company renting the units acquiring unfurnished properties for nine years for use as primary residence for tenants in respect of rent caps set annually by decree.

When a subscription is assigned to the achievement of several investments, the commitment to hire the company must be made separately for each dwelling. REITs can be diverted to sell corporate or public use properties (such as administrative buildings, hotels, retail or logistics properties) and release the capital tied up in it.

 

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