What is a REIT (Real Estate Investment Trust)?
A Real Estate Investment Trust (REIT) is a type of investment vehicle that invests in real estate-related assets such as office buildings, shopping centers, and apartment complexes. REITs provide investors with the opportunity to invest in real estate without having to own or manage any physical real estate. REITs are typically structured as pass-through entities, meaning that income is passed through to shareholders and taxed at their individual income tax rate. REITs are also required to pay out at least 90% of their taxable income to shareholders as dividends in order to maintain their tax-advantaged status.
Why should I invest in REITs?
REITs (Real Estate Investment Trusts) are a great way for investors to diversify their portfolio and to gain exposure to the real estate market. REITs offer investors a number of advantages, such as:
1. Diversification: REITs provide investors with the opportunity to diversify their portfolios and gain exposure to different real estate asset classes and markets.
2. High Returns: REITs typically offer higher returns than other investments, such as bonds and stocks.
3.Tax Benefits: Investors can benefit from several tax advantages, including lower taxes on dividend income and deferred taxes on capital gains.
4. Liquidity: REITs are relatively liquid investments and can be sold quickly if needed.
5. Professional Management: REITs are managed by professional teams who are responsible for managing the properties and ensuring that they are properly operated and maintained.For these reasons, investing in REITs can be an attractive option for investors looking to diversify their portfolios and gain exposure to the real estate market.
What are the requirements for a company to qualify as a REIT in the United States?
In order to qualify as a Real Estate Investment Trust (REIT) in the United States, the entity must meet the following requirements:
1. Invest at least 75% of total assets in real estate, cash and U.S. government securities;
2. Generate at least 75% of gross income from rents, interest on mortgages financing real estate, or from the sale of real estate;
3. Have at least 100 shareholders;
4. Have no more than 50% of its shares owned by five or fewer individuals during the last half of the taxable year;
5. Be managed by a board of directors or trustees;
6. Make distributions of at least 90% of REIT taxable income to shareholders annually; and
7. Be taxed as a corporation.
8. The trust must meet certain organization and operational requirements.
Where can I buy REITs?
REITs can be purchased through a variety of brokers and financial advisors. Most major brokerage firms offer REITs, and you can also purchase REITs through mutual funds, ETFs, and other investment vehicles. Additionally, you can purchase REITs directly from the companies themselves. You can also purchase REITs through online stock trading platforms, such as Interactive Brokers, TD Ameritrade, Robinhood and Fidelity.
How are REITs taxed?
REITs are typically taxed as pass-through entities, meaning that REIT income is passed through to the shareholders and taxed at their individual income tax rate. REITs are also required to pay out at least 90% of their taxable income to shareholders as dividends in order to maintain their tax-advantaged status.
What are the benefits of investing in REITs?
REITs offer investors a number of advantages, such as diversification, tax benefits, liquidity, and professional management. Additionally, REITs provide investors with exposure to real estate without having to own or manage any physical real estate.
What are the risks of investing in REITs?
As with any investment, there are risks associated with investing in REITs. REITs are subject to interest rate risk, meaning that if interest rates increase, the value of REITs may decrease. Additionally, REITs can be subject to market risk, meaning that if the real estate market declines, the value of REITs may decline as well. Finally, REITs may be subject to liquidity risk, meaning that it may be difficult to sell REIT shares quickly if needed.
What are the risks of investing in Mortgage REITs?
Mortgage REITs carry some of the same risks as other REITs, as well as some additional risks. Mortgage REITs are subject to interest rate risk, meaning that if interest rates increase, the value of Mortgage REITs may decrease. Additionally, Mortgage REITs may be subject to liquidity risk, meaning that it may be difficult to sell Mortgage REIT shares quickly if needed. Additionally, Mortgage REITs are subject to credit risk, meaning that if the borrower defaults on a mortgage, the value of the Mortgage REIT may be negatively impacted.
What is a REIT ETF?
A REIT ETF (Real Estate Investment Trust Exchange Traded Fund) is a type of ETF that invests in REITs. REIT ETFs provide investors with the opportunity to gain exposure to a diversified portfolio of REITs, as they typically hold a variety of REITs in different asset classes and markets. Additionally, REIT ETFs typically offer lower management fees than mutual funds, making them a cost-effective investment option.
What are examples of REIT ETFs?
Some examples of REIT ETFs include the Vanguard REIT ETF (VNQ), the iShares US Real Estate ETF (IYR), and the Schwab US REIT ETF (SCHH). Some examples of Canadian REIT ETFs include the BMO Equal Weight REITs Index ETF (ZRE), the iShares S&P/TSX Capped REIT Index ETF (XRE), and the Horizons Active Canadian REIT ETF (HRE.TO).
How many countries have REITs?
REITs are currently available in over 30 countries around the world, including the United States, Canada, Japan, Australia, France, the United Kingdom, Singapore, and many more.
When was the first REIT created?
The first REIT created in the United States was the Equity Office Properties Trust, which was created in 1960. The first Canadian REIT was the Canadian Real Estate Investment Trust (CREIT), which was created in 1993.
Who was responsible for the creation of REITs?
The concept of REITs was developed by Congress in the United States in 1960, and enacted through the REIT Act. In Canada, REITs were created in 1993, when the Canadian government amended the Income Tax Act to allow for the formation of publicly traded REITs.
Why were REITs created?
REITs were created to provide investors with the opportunity to invest in real estate without having to own or manage any physical real estate. Additionally, REITs provide investors with the opportunity to gain exposure to real estate through a diversified portfolio of REITs, as well as access to professional management teams. By providing these benefits, REITs have become a popular investment option for many investors.
What is a dividend?
A dividend is a payment made by a company to its shareholders. Dividends are typically paid out of a company's profits and are usually paid on a quarterly basis. Dividends can provide investors with a steady stream of income, as well as the potential for capital appreciation over time.
What are the different types of dividends a REIT can declare?
REITs can declare two different types of dividends: regular dividends and special dividends. Regular dividends are typically declared on a quarterly basis, while special dividends are declared on an as-needed basis. Regular dividends are usually paid out of a REIT's profits, while special dividends are typically paid out of a REIT's capital reserves.
What are the tax treatments a REIT distribution can have?
REIT distributions are typically taxed as ordinary income, meaning that they are taxed at the individual's marginal tax rate. However, some REIT distributions may be eligible for special tax treatments, such as the Low-Income Housing Tax Credit. A distribution may also be declared as Return of Capital which is not taxed (more details in the next question). It is important to consult with a tax advisor to determine the specific tax implications of investing in REITs.
Can a REIT distribute as a return of capital?
Yes, a REIT can distribute a return of capital to shareholders. A return of capital is a payment made to shareholders that is not considered taxable income. Instead, it reduces the shareholder's cost basis in the REIT, meaning that the shareholder will not have to pay taxes on any capital gains until the cost basis is reduced to zero.
How frequent is the data updated?
Although alreits.com is not a trading platform, we try to update Market data near real-time.
Market data include: price, dividend per share, dividend yield, market cap, price/earnings.
Financial data from Large Cap REITs are updated as soon as they are released. Other REITs might take a couple of days to be updated on the platform.
Financial data include: Earnings metrics (FFO, AFFO, Net Income, among others), Earnings per Share, Assets, Debt ratios, Portfolio information.
Sector and Geography Diversification data is updated at least once a year from audited reports.
Diversification data include: number of properties per country/sector/industry, size, number of states/provinces, percentage of revenue.
Why you don't show only the Funds From Operations (FFO) anymore?
Every REIT will report the accounting adjustments that reflect its operational results. For Equity REITs, the Funds From Operations (FFO) is a common metric that will take into account several accounting adjustments such as amortization and deprecation. However, not all Equity REITs will report FFO. They usually report a variation of FFO such as Adjusted FFO, Normalized FFO, Core FFO, NAREIT FFO or no adjustment at all. To simplify analysis, we named this metric as FFO regardless if it was actually AFFO or Core FFO and this was confusing and led to many support questions.
Mortgage REITs function more like Financial companies. Since they don't own a lot of depreciating assets, they don't report metrics such as FFO and AFFO. Therefore, having FFO on the platform would cause even more confusion. We then decided to call this general metric among all REITs as simply Earnings. The REIT page and the score calculation will show exactly which metric was reported by the company (FFO, AFFO, Net Income etc) in an attempt to improve transparency and to cover the specifics of each company.
What is the Ranking System based on?
Our Ranking System is based on the literature, primarily the book Investing in REITs: Real Estate Investment Trusts by Ralph L. Block. The scoring system does not take into consideration any subjective metric such as price, price/earnings, discount to 52w highs, sentiment analysis or analyst estimates. We have no control over those metrics. The market behavior in the short term is proven to be random therefore cannot be predicted. Longevity as a public company, earnings and earnings per share growth rates, Dividend growth and Payout ratio, Debt analysis - these are facts that can be used to help investors understand the current financial situation of the companies. A high score doesn't mean the REIT will outperform the market, it just reflects the quality of the REIT. Because of that, the market will probably demand a premium on those REITs (higher-than-average price/earnings ratio). Use the Ranking System as a guide to the current financial performance of a REIT and not future returns.