REIT’s – Complete Guide

The complete guide to understanding REIT’s

Not everyone knows what a REIT is and what exactly they do. So I decided to do a little research and prepare the complete guide to understanding REIT’s. If you have any questions left unanswered at the end of reading this, please comment and I can included your questions!

What is a REIT?

A REIT or real estate investment trust – is a company, which has been established for investing in real estate – being apartments, houses, hospitals, shopping centres, hotels and apartment buildings.

What are the types of REIT’s?

There are two broad types of REIT’s – 

  1. Equity REIT
  2. Mortgage REIT

Equity REITs, providing investors with the opportunity to invest in portfolios of income-producing real estate. These companies’ own properties in a range of real estate sectors that are leased to tenants, such as office buildings, shopping centers, apartment complexes and more. They are required to distribute a minimum of 90 percent of their income to shareholders in the form of dividends. This is certainly the case in Australia, from the list of ASX listed REIT’s available below, they are all equity REIT’s. 

Mortgage REITs(mREITS) provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities (MBS) and earning income from the interest on these investments.

What is the structure of REIT’s?

A REIT structure can be either Public traded, public non-traded, private. These are explained as follows:

Public traded- those, which can be bought and sold on a stock exchange. Public non traded reduce or eliminate tax while providing returns on real estate. A non-traded REIT does not trade on a securities exchange and because of this, it is quite illiquid for long periods of time

Public Non Traded– These terms are more relevant to the American market. Non traded REIT’s aree SEC-registered offerings so are therefore required to adhere to the Securities Acts. A broker or dealer will manager the purchase and sale process and will generally front load the commission they earn reaching between 10-15% of the purchase value.  Liquidity of these non traded REIT’s are limited as they are not listed or traded on an major security exchange.

Private- Private REITs are real estate funds or companies that are exempt from SEC registration and whose shares do not trade on national stock exchanges. Private REITs generally can be sold only to institutional investors. Again this term is mainly from the American market.

Why were REIT’s created?

Originally President Eisenhower developed the REIT’s in the US in the 60’s. Since then they have exploded around the globe to now be in 35+ countries, around 477 different stock exchange traded REIT’s. The first REIT in Australia was called General Property Trust (GPT) and was listed in 1971. GPT is still around today.

REITs offer investors a simple way to invest in large commercial investment opportunities they would otherwise not be able to access. In turn, the rental yields delivered by these real estate assets both underpin the asset value of the REIT, and are also (due to the unique taxation structure of REITs) passed on as distributions to investors on a pre-tax basis.

What are the Australian REIT’s which are available to investors?

Below is a list of some A-REITs listed on the ASX:

Symbol REIT Name. Type. Sector
AADArdent Leisure GroupEquity REITDiversified, Specialty
ABPAbacus Property GroupEquity REITIndustrial, Office, Retail, Self Storage
ARFArena REITEquity REITHealth Care, Specialty
BWPBWP TrustEquity REITRetail
BWRBlackWall Property TrustEquity REITOffice, Retail
CDPCarindale Property TrustEquity REITRetail
CIPCenturia Industrial ReitEquity REITIndustrial
CLWCharter Hall Long Wale REITEquity REITIndustrial, Office, Retail
CMACenturia Metropolitan REITEquity REITIndustrial
CMWCromwell GroupEquity REITRetail, Office, Industrial
CQRCharter Hall Retail REITEquity REITIndustrial, Office, Retail
CRRConvenience Retail REITEquity REITRetail, Specialty
DXSDEXUS Property GroupEquity REITIndustrial, Health Care, Office, Retail
FETFolkestone Education TrustEquity REITSpecialty
GMGGoodman Group Ltd.Equity REITIndustrial
GOZGrowthpoint Properties Australia Ltd.Equity REITIndustrial, Office
HPIHotel Property Investment Ltd.Equity REITHotel, Retail, Specialty
IDRIndustria REITEquity REITIndustrial
INAIngenia Communities GroupEquity REITResidential
IOFInvesta Office FundEquity REITOffice
LEPALE Property GroupEquity REITSpecialty
MGRMirvac GroupEquity REITRetail
NSRNational Storage REITEquity REITSelf Storage
RFFRural Funds GroupEquity REITSpecialty
SCGScentre GroupEquity REITRetail
SCPShopping Centres Australasia (SCA Property Group)Equity REITRetail
SGPStockland Corporation LimitedEquity REITIndustrial, Residential, Office, Health Care, Specialty
URFUS Masters Residential Property FundEquity REITResidential
VCXVicinity Centres LtdEquity REITRetail
VVRViva Energy REITEquity REITRetail, Specialty
WFDWestfield Corp LtdEquity REITRetail


What are the Pro’s and Con’s of a REIT?

From the research we have performed, the following are the pro’s and con’s:

PROS

Liquidity – Very easy to buy and sell similar to stocks on an exchange market.  Diversification – Investors love having these in their portfolio as they have a very low correlation with other types of investments.   

Transparency – Given REIT’s are regulated; they are required to prepare audited financial statements that are accessible to investors. 

Dividends – REIT’s pay regular cash dividends and even provide options for DRP or DRIP reinvestment.  

Performance – Very competitive performance. 

CONS

Fees – Depending on the particular REIT, they may have high fees associated.

Low growth – In the US REIT’s generally pay 90% of income back to investors. 

Taxes – In the US REIT’s are taxed as regular income.

Market Risk – There is still a risk of poor performance. 

Are REIT’s a good investment?

The answer is it depends on your personal situation, Yes REIT’s can be a very good investment but they can also be a bad investment.

How to invest in REIT’s?

This depends on the type of REIT that you are interested in, if they are trading publicly then it is very easy to invest as you just need to know the ticker code and you can purchase through your stockbroker. If they are a private REIT then you need to contact that REIT directly and they will give you the online forms to enter into. 

Are REIT’s liquid?

If the REIT you have selected is publicly tradable then yes it is highly liquid, however if you have selected a private REIT when you go to sell there may not be a market that is easily assessable to sell your product. Hence you need to ensure you do your research first on the type of REIT that you are selecting. 

What are the features of REIT’s?

The features of a REIT depend on the type of REIT. For a publicly tradable REIT the features are as follows:

Large dividends– particular in the US they pay out most of their profits through dividends so you can receive a dividend which is much higher than competing investment types.

Very liquid – Publicly listed REIT’s are easy to buy and sell.

Diverse – Investors love REIT’s because of their very low correlation to other stocks, bonds etc. You can include them in your portfolio to minimize risks.

Transparency – Due to the fact that public REIT’s disclose their financial statements, the investors get to understand where their money is and how it is performing. If things start to go pear shaped, they are able to see it happening in the numbers.

Want to read more?

If you are like me and want to read all there is one generation of passive income, then follow this link through to my Top 30 Passive Income Ideas. Here I list out similar ideas to the one above, and go into detail explaining how to generate passive income through them. 

I also have my Top 10 Passive Income Book list that I save you hours and hours of reading and take the very best lessons I learnt from each book. 

Disclaimer– The information on this website is for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered legal practitioner or financial or investment adviser. No material contained within this website should be construed or relied upon as providing recommendations in relation to any legal or financial product.

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