A real estate investment trust, or REIT, is a company that owns, and in most cases, operates income-producing real estate. Some REITs also engage in financing real estate. The shares of many REITs are traded on major stock exchanges.
To qualify as a REIT, a company must have most of its assets and income tied to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends. A company that qualifies as a REIT is permitted to deduct dividends paid to its shareholders from its corporate taxable income. As a result, most REITs historically remit at least 100 percent of their taxable income to their shareholders and therefore owe no corporate tax. Taxes are paid by shareholders on the dividends received and any capital gains. Most states honor this federal treatment and also do not require REITs to pay state income tax. Like other businesses, but unlike partnerships, a REIT cannot pass any tax losses through to its investors. Source: http://www.reit.com
According to the JSE Real Estate Investment Trusts in South Africa: REIT’s are tax advantaged investment vehicles that invest in and derive their income from real estate properties and mortgages. REIT’s profits are distributed pre-tax and then taxed in the investors’ hands. National Treasury is still considering a South African REIT structure, therefore JSE listed REIT’s are dual listings.
- Investors are able to gain exposure to immovable property with a smaller initial outlay
- The shares of REIT’s are more liquid than the underlying properties which constitute to their portfolios
- REIT’s give investors the opportunity to invest in a diverse portfolio of expertly managed immovable property
- REIT’s provide regular streams of income
- Tax Efficiency – tax is payable in the hands of the end investor and not by the REIT
- REIT’s are subject to the regulation of the exchange upon which they list as well as the REIT regulations
Who should use this product? Investors looking to gain exposure to the property market without large initial outlays Investors with a long term investment horizon who require income returns from their investment How to use this product? REIT’s trade like regular shares and can be purchased through a stockbroker. Source: http://www.jse.co.za
I have been writing on the subject of REITs of late, find some examples below.: