FAQ on REITS
THE BASICS OF REITS
1) What is a REIT?
A REIT is a company that mainly owns, and in most cases, operates
income-producing real estate such as apartments, shopping centers,
offices, hotels and warehouses. 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 its shareholders annually. 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 remit at least 100 percent of their taxable income to their
shareholders and therefore owe no corporate tax.
2) Why were REITs Created?
Congress created REITs in 1960 to make investments in large-scale,
income-producing real estate accessible to average investors.
Congress decided that a way for average investors to invest in large
scale commercial properties was the same way they invest in other
industries — through the purchase of equity. In the same way
shareholders benefit by owning stocks of other corporations, the
stockholders of a REIT earn a pro-rata share of the economic
benefits that are derived from the production of income through
commercial real estate ownership. REITs offer distinct advantages for
investors: portfolio diversification, strong and reliable dividends,
liquidity, solid long-term performance and transparency.
3) How Does a Company Qualify as a REIT?
REIT must:
• Be an entity that is taxable as a corporation
• Be managed by a board of directors or trustees
• Have shares that are fully transferable
• Have a minimum of 100 shareholders
• Have no more than 50 percent of its shares held by five
or fewer individuals during the last half of the taxable year
• Invest at least 75 percent of its total assets in real estate assets
• Derive at least 75 percent of its gross income from rents
from real property or interest on mortgages financing real property
• Have no more than 20 percent of its assets consist of
stocks in taxable REIT subsidiaries
• Pay annually at least 90 percent of its taxable income in
the form of shareholder dividends
* Information taken from:
National Association of Real Estate Investment Trusts®
REITs: Building Dividends and Diversification®
THE BASICS OF REITS
1) What is a REIT?
A REIT is a company that mainly owns, and in most cases, operates
income-producing real estate such as apartments, shopping centers,
offices, hotels and warehouses. 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 its shareholders annually. 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 remit at least 100 percent of their taxable income to their
shareholders and therefore owe no corporate tax.
2) Why were REITs Created?
Congress created REITs in 1960 to make investments in large-scale,
income-producing real estate accessible to average investors.
Congress decided that a way for average investors to invest in large
scale commercial properties was the same way they invest in other
industries — through the purchase of equity. In the same way
shareholders benefit by owning stocks of other corporations, the
stockholders of a REIT earn a pro-rata share of the economic
benefits that are derived from the production of income through
commercial real estate ownership. REITs offer distinct advantages for
investors: portfolio diversification, strong and reliable dividends,
liquidity, solid long-term performance and transparency.
3) How Does a Company Qualify as a REIT?
REIT must:
• Be an entity that is taxable as a corporation
• Be managed by a board of directors or trustees
• Have shares that are fully transferable
• Have a minimum of 100 shareholders
• Have no more than 50 percent of its shares held by five
or fewer individuals during the last half of the taxable year
• Invest at least 75 percent of its total assets in real estate assets
• Derive at least 75 percent of its gross income from rents
from real property or interest on mortgages financing real property
• Have no more than 20 percent of its assets consist of
stocks in taxable REIT subsidiaries
• Pay annually at least 90 percent of its taxable income in
the form of shareholder dividends
* Information taken from:
National Association of Real Estate Investment Trusts®
REITs: Building Dividends and Diversification®
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