REIT - Real Estate Investment Trust
A Real Estate Investment Trust or REIT (pronounced /'ri?t/) is a tax designation for a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REITs are required to distribute 90% of their income, which may be taxable in the hands of the investors. The REIT structure was designed to provide a similar structure for investment in real estate as mutual funds provide for investment in stocks.
Like other corporations, REITs can be publicly or privately held. Public REITs may be listed on public stock exchanges like shares of common stock in other firms.
REITs can be classified as equity, mortgage or hybrid.
The key statistics to look at in REIT are its NAV (Net Asset Value), AFFO (Adjusted Funds From Operations) and CAD (Cash Available for Distribution).
Qualification
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 corporation, trust, or association[5]
- Be managed by a board of directors or trustees[6]
- Have transferable shares or transferable certificates of interest[7]
- Otherwise be taxable as a domestic corporation[8]
- Not be a financial institution or an insurance company[9]
- Be jointly owned by 100 persons or more[10]
- Have 95 percent of its income derived from dividends, interest, and property income[11]
- Pay dividends of at least 90% of the REIT's taxable income
- No more than 50% of the shares can be held by five or fewer individuals during the last half of each taxable year
- At least 75% of total investment assets must be in real estate
- Derive at least 75% of gross income from rents or mortgage interest
- No more than 20% of its assets may consist of stocks in taxable REIT subsidiaries.
This article is issued under the terms of GNU Free Documentation License. It uses material from entry Wikipedia: "English".
