Real estate investment trust
From Wikinvestor
A Real Estate Investment Trust or REIT 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 95% 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). REITs face challenges from both a slowing economy and the global financial crisis, depressing share values by 40 to 70 per cent in some cases.[1]
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United States
A real estate investment trust, or 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.
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[2]
- Be managed by a board of directors or trustees[3]
- Have transferable shares or transferable certificates of interest[4]
- Otherwise be taxable as a domestic corporation[5]
- Not be a financial institution or an insurance company[6]
- Be jointly owned by 100 persons or more[7]
- Have 95 percent of its income derived from dividends, interest, and property income[8]
- 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 (5/50 rule)
- 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.
References
- ↑ CARRICK, ROB. "REITs battered down to eye-catching levels", ctv.ca. Retrieved on 8 December 2008.
- ↑ Internal Revenue Code Sect. 856(a)
- ↑ Internal Revenue Code Sect. 856(a)(1)
- ↑ Internal Revenue Code Sect. 856(a)(2)
- ↑ Internal Revenue Code Sect. 856(a)(3)
- ↑ See Internal Revenue Code Sect. 856(a)(4). See also Internal Revenue Code Sect. 582(c)(2) (defining financial institutions for these purposes); Internal Revenue Code Sect. 801 et. seq. (defining insurance companies for these purposes).
- ↑ Internal Revenue Code Sect. 856(a)(5).
- ↑ Internal Revenue Code Sect. 856(c)(2)
