Real Estate Investment Trusts: Numbers are In and Might Be a Win! 

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Real Estate Investment Trusts are in the news.  And now that all the excitement of tax season 2017 has settled down, the team at Gavrilov & Co are seeing an onrush of new financial data from many sectors.  And Real Estate is one of the big ones.  We are in a great time period for tax planning and perhaps for re-examining our investments.  As we progress from this moment to tax season 2018, let’s spend a few of our blogs checking out the exciting news and numbers of investment situations that are trending now.

What is Involved in a Real Estate Investment Trust (REIT)?

A REIT is an investment company that owns, finances or operates property with the intent of producing income.

A REIT is much like Mutual Funds.  Investors are provided the “chance to own valuable real estate”...  They are given the chance “to access dividend-based income and total returns, and help communities grow, thrive and revitalize.”  LINK

There are numerous categories of REITs and we will investigate some of these in future blogs.

News You Could Use, Trending in the REIT Market

If you are already investing in a Real Estate Investment Trust, you might already know the sweet statistics, recently reported:

  1. REITS raised $38.3 billion in common equity in 2017, the highest annual total since 2013.
  2. Underwritten secondary equity offerings totaled $27.9 billion.
  3. Likewise, there was $3.0 billion worth of IPOs.  Now, we should remind you that the IPO total is the highest since 2014.
  4. Meanwhile, the At-the-market (often called ATM, but not to be confused with bank cashing machines) offerings created a new record:  7.5 billion in equity capital for REITs in 2017.

Real Estate Investment Trusts:  The Backstory

Some of this good news was already beginning in February when we saw some interesting numbers for REITs or Real Estate Investment Trusts.

Jason Yablon of a portfolio manager at Cohen & Steers (CNS), a leading REIT manager, noted the combination of a current 4.5% average REIT dividend yield and the prospect of about 7% growth in funds from operations, or FFO, a REIT cash-flow measure.  He stated that in 2018 and 2019, the figures could translate into double-digit returns in both years.

He added, “We think REITs are attractively valued now.  The fundamentals are healthy.”

On the one hand, perhaps you have Already invested in a Real Estate Investment Trust.

On the other hand, perhaps you are exploring this year’s options in view of a nice plump tax refund to invest.  And perhaps you like the idea of Real Estate, but you do not want to be anyone’s immediate superintendent or landlord.  Put simply, a Real Estate Investment Trust allows you to make that investment without hands-on property manager style of involvement.

Five Fabulous Facts About Real Estate Investment Trusts

If you are considering investing in real estate in some manner, then you need to know these basic facts.

  1. At its heart, a REIT is simply a “trust company that accumulates a pool of money, through an initial public offering (IPO), which is then used to buy, develop, manage and sell assets in real estate.”
  2. The IPO sticks to the same rules regarding reporting, requirements, and regulations as any other security.  However, “instead of purchasing stock in a single company, the owner of one REIT unit is buying a portion of a managed pool of real estate.”
  3. That is where the shareholders (you) make their money.  The pool of real estate “generates income through renting, leasing and selling of property and distributes it directly to the REIT holder on a regular basis.”
  4. When you buy a share of a REIT, you are essentially buying a physical asset.  With appreciation, you can expect the income from rent to last a long time.
  5. With a REIT you take a stake in the ownership of the property as it increases or decreases in value.  And at the same time, you are “participating in the income generated by the property.”

A Terrific Take-Away

The business model of a Real Estate Investment Trust works very simply:

The trust leases space and collects rent.

Thus the company generates income.

Then the trust pays out 90-100 percent of their taxable income to shareholders.

Did you know that you can find REIT-owned real estate in every state of the US?  And at Gavrilov & Company, we think it is remarkable that 80 million Americans own shares in such companies.

A Menu of Types of REITs

  1. Equity REITs - The lion’s share of REITs is comprised of publicly traded equity REITs.
  2. Mortgage REITs - Mortgage REITs finance for “income-producing real estate by purchasing or originating mortgages and mortgage-backed securities.”
  3. Public Non-listed REITs - “PNLRs are registered with the SEC but do not trade on national stock exchanges.”
  4. Private REITs - Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.

Gavrilov & Co Reminds You of the Criteria for Real Estate Investment Trusts

As we have stated, most REITs typically pay out all of their taxable income as dividends to shareholders.  However, the shareholders must do their part.  As you might have guessed, they pay the income tax on those dividends.

Before you choose a REIT, be careful. Check out the criteria for a proper company.  Below is a list of requirements a company must fulfill in order to qualify as a REIT.

Deal with actual real estate:  The company Invests a minimum of 75 percent of its total assets in real estate.

Collect:  They take 75 percent of their gross income “from rents from real property, interest on mortgages financing real property or from sales of real estate.”

Pay 90-100 percent of their taxable income to shareholders in dividends each year.

Tax is Corporate:  They are a taxable corporation

They Rule:  A board of directors or trustees manages the trust.

The Count:  A minimum of 100 shareholders participate with them.

They do not allow more than 50 percent of their shares to be held by 5 or fewer people.

If you any questions you can contact me via email: This email address is being protected from spambots. You need JavaScript enabled to view it. 

By Rudy Gavrilov