Real Estate Investment Trusts (REITs) Industry Overview

Excerpt from Real Estate Investment Trusts (REITs) Report

Companies in this industry primarily own and manage income-producing real estate such as retail, office, industrial, and multifamily residential buildings. Major US companies include Equity Residential, Prologis, and Simon Property Group; major REITs based outside the US include Icade (France), Land Securities Group (UK), Link Real Estate Investment Trust (Hong Kong), and Stockland Corporation (Australia).

Competitive Landscape

The health of the economy drives demand for REITs as investment vehicles. Profitability depends on the value of the properties in the portfolio, which in turn highly depends on real estate vacancy rates. Large companies have advantages in deal-making, and economies of scale in marketing, computer and infrastructure investment, and operations. Smaller companies can compete by specializing not only in real estate type, but by geography, though geographic focus can increase risks.

Products, Operations & Technology

REITs are corporations that derive most of their revenue from owning or managing real estate, or from mortgages secured by real estate. A company organized as a REIT under IRS regulations can avoid paying corporate taxes if it pays out at least 90 percent of its taxable income (excluding capital gains) as dividends to shareholders. The benefit of being a REIT is that corporate income isn't taxed; the disadvantage is that the company can't fund growth with retained earnings. Many REITs have been exploring the cash-saving technique of declaring a dividend partly in cash and partly in newly issued stock.