- 1 What are the statistics of REITs?
- 2 What is the outlook for real estate investment trusts?
- 3 What is the most successful REIT?
- 4 How many countries have REITs?
- 5 Are REITs doing well?
- 6 Why is REIT losing money?
- 7 How are REITs doing 2023?
- 8 Why are REITs struggling?
- 9 What is better than REITs?
- 10 What is Europe’s largest REIT?
- 11 What is the 90% REIT rule?
How big is the REIT industry?
The market size, measured by revenue, of the Real Estate Investment Trusts industry was $241.0bn in 2022. What was the growth rate of the Real Estate Investment Trusts industry in the US in 2022? The market size of the Real Estate Investment Trusts industry declined -13.3% in 2022.
How many investors are there in REIT?
November 2022 This research note estimates the number of American households and Americans that own REIT stocks directly or indirectly through mutual funds, ETFs or target date funds. We estimate that approximately 150 million Americans, or roughly 45% of American house- holds, are invested in REIT stocks.
What are the statistics of REITs?
A Snapshot of Today’s REIT Industry – In 1960, Congress established REITs to provide everyday American investors the opportunity to invest in income-producing real estate—much like mutual funds were created to give Americans from all income levels access to capital markets. REIT properties are critical to the economy.
- There are approximately 535,000 REIT-owned properties, which include data centers, hospitals, hotels, housing, industrial facilities, offices, shopping centers, malls, free-standing retail, storage centers, telecommunications infrastructure, and timberlands.
- REITs help create jobs.
- In 2021, REITs supported an estimated 3.2 million jobs and $229 billion in labor income.
Today, 150 million Americans, or approximately 45% of the U.S. population, live in households that are invested in REITs through investment accounts and retirement plans. REITs support the economy by channeling capital into—and increasing the transparency, liquidity, and stability of—the markets. Today, U.S. REITs own nearly $4.5 trillion of gross real estate with public REITs owning $3 trillion in assets.U.S. listed REITs have an equity market capitalization of more than $1.3 trillion. In 2021, REITs paid an estimated $92.3 billion in dividends to shareholders. REITs have historically delivered competitive total returns for investors based on high, steady dividend income and long-term capital appreciation. REITs comparatively low correlation with other assets makes them an excellent portfolio diversifier that helps reduce investors’ overall portfolio risk and increases returns,
Multiple studies, including those from Ibbotson Associates, Morningstar, and Wilshire Funds Management have found that the optimal REIT portfolio allocation may be between 5% and 15%. Mortgage REITs (mREITs) provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.
One million homes have been financed by mREITs in the U.S. REITs are also being used by global institutional investors. In fact, 64% of the top 25 largest U.S. and global institutional investors use REITs in their portfolios. REITs support the economy by channeling capital into–and increasing the transparency, liquidity and stability of–the markets. Additionally, REITs have been real estate innovators for decades. Fifty years after its debut, the FTSE Nareit U.S. All Equity REIT Index, which includes more than 200 REITs, remains the default REIT benchmark for many analysts, investment managers, and investors. REITs are a model for real estate investment globally. More than 40 countries and regions have adopted the U.S.-based REIT approach to real estate investment offering investors access to portfolios of income producing real estate across the globe. Mutual funds and exchange-traded funds offer the easiest and most efficient way for investors to add global listed real estate allocations to portfolios.
While the U.S. remains the largest listed real estate market, the listed real estate market is increasingly becoming global. The growth is being driven by the appeal of the U.S. REIT approach to real estate investment. A total of 865 listed REITs with a combined equity market capitalization of approximately $2.5 trillion (as of Dec.2021) are in operation around the world.
Today, more than 40 countries and regions have REITs, including all G7 countries. Nearly 5 billion people worldwide live in countries that have enacted REITs.
What is the outlook for real estate investment trusts?
REITs are entering this period of slower economic growth with strong operational performance and are well-positioned for economic uncertainty in 2023. Our analysis of CRE and REITs notes that REITs had impressive operational results with record high earnings during 2022, despite their lower stock market valuations.
Is the REIT industry competitive?
Key Success Factors – Market environment The real estate market depends a lot on a good market environment ranging from wages, inflation, interest rates, high mortgage prices and market volatility. A good market environment always helps to lead to successful real estate environment.
Superior financial management A significant amount of capital and debt is used to finance property acquisitions. Therefore, companies must be able to properly manage cash flows, reserves and debt levels to grow and effectively manage property portfolios. Maintenance of excellent customer relations Understanding the needs of, and having good relationships with existing and prospective clients can assist operators in gaining new business and retaining existing customers.
Proximity to key locations Tenants pay a premium for buildings located near business centers, transportation hubs and entertainment venues. Buildings in metropolitan areas usually have higher rental income and less vacancies. Access to highly skilled workforce Real estate firms that employ highly skilled staff with specialized knowledge can develop a reputation for quality service and increase their bargaining power.
- Cost Structure Benchmarks Cost structure may vary depending on the segment in the REITs industry.
- Profits EBIT (earnings before interest and taxes) varies for firms in different segments of the REITs industry.
- Probability has been recovering, since the subprime crisis, in property values and construction projects.
Interest expense makes up a large portion of the real estate holdings after EBIT as companies attempt to raise capital for developments and acquisitions. Purchases The largest of the purchases are associated with contracting and acquiring properties, which can be also financed with debt.
- Because some form of debt is typically used in the purchases of properties most firms will have fairly high interest expenses or the gradual elimination of liability, such as loan, from a company’s balance sheet.
- Another major purchase incurred is construction materials for development projects.
- Construction materials will vary depending on commodity prices, as most costs are related to concrete, glass, structural steel, concrete panels, panels, structural timber, metal cladding, aluminum fitting, electrical power, fuels and lubricants.
Other Costs Depreciation and amortization usually accounts for a large portion of the REITs costs. REIT properties experience annual wear and tear or loss of utility, so companies depreciate real estate assets over time to account for this deduction. Selling, general, administration and development also make up a decent amount of expenses incurred throughout the year for firms.
Which country has the most REITs?
To qualify for a REIT, companies need to distribute 90 percent of their taxable income to shareholders. This model originated in the United States – the largest REIT market worldwide.
What is the 90% REIT rule?
How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
What is the most successful REIT?
Best-performing REIT stocks: July 2023 – Here are some of the top performing publicly listed REITs:
|Symbol||Company||REIT performance (1-year total return)||Share price|
|SVC||Service Properties Trust||80.3%||$8.69|
|PLYM||Plymouth Industrial REIT, Inc.||39.4%||$23.03|
|UBA||Urstadt Biddle Properties, Inc.||37.8%||$21.24|
Rather than purchase individual REITs, you can also invest in REIT mutual funds and real estate ETFs to get instant diversification at an affordable price. Here are some top performing property-focused mutual funds and ETFs the past year:
What is the 95% rule for REIT?
Understanding the Basics of Real Estate Investment Trusts (“REITs”) Both real estate investors and real estate private equity fund sponsors must consider the organizational structures they use to hold their investments. Historically, partnerships and limited liability companies (“LLCs”) have been the top choice due to their flexibility and tax benefits.
- The REIT is another option to consider as there are significant benefits to both individual investors and property owners.
- REITs can avoid corporate income taxes (for the most part), while offering the ability to diversify a portfolio’s investment mix.
- In the real estate sector, REITs are commonly identified by the type of real estate investments they hold.
The following categories are the main types of REITs. Equity REITs primarily own and operate real estate related assets (multi-family, office, industrial, hospitality, data storage centers, etc.). Mortgage REITs generally provide financing directly to real estate owners and operators or hold mezzanine debt.
- While there are significant tax benefits through the use of REITs, these four requirements and tests are key considerations for an entity considering a REIT structure (a) ownership requirements; (b) asset tests; (c) income tests; and (d) distribution requirements.
- Ownership Requirements
- In order to qualify as a REIT, the following rules apply:
- Legal formation as a corporation, trust or association (although LLCs may elect to be treated as a corporation under the tax code).
- Management must be by one or more trustees or directors.
- Ownership by at least 100 shareholders starting with the second taxable year (100 shareholders must exist at least 335 days of each year).
- Greater than 50% in value of entity’s stock cannot be owned by five or fewer individuals during the last half of each tax year.
Within the provisions of the REIT and related structures, it is a common practice to limit the amount of ownership an individual may maintain to less than the 10% of the total shares to ensure a REIT maintains the provisions of the “5 or fewer” test.
Asset Tests Under the asset tests in Section 856(c)(4), 75% of the value of the total assets of a REIT at the close of each quarter of a taxable year must consist of qualifying assets. The term “total assets” means gross assets of the REIT determined according to U.S. GAAP. Qualifying assets of the REIT are represented by one or more of (a) real estate assets; (b) government securities; and (c) cash and cash items, including receivables.
The term “real estate assets” includes tangible real property, interests in real property, and interests in mortgages. These items would include property such as land, land improvements, buildings or structures as well interests in real property such as co-ops, timeshares, and so forth for equity REITs and would include interests in mortgage and mezzanine debt.
- No more than 20% of a REIT’s total assets may consist of securities of taxable REIT subsidiaries (TRSs), and not more than 5% of its total assets can be of any one issuer, except for securities qualifying for the 75% test and for securities of TRSs.
- No more than 25% of a REIT’s total assets can consist of securities.
- No more than 10% of the outstanding value of the securities of any one issuer may be held by a REIT, except with respect to TRSs.
If a REIT is not in compliance with the asset test at the end of a quarter, the REIT has the ability to cure the failures/non-compliance generally within a one-month period. As a result, it is very important that a REIT closes its books and analyzes these items on a timely basis.
Also related to the asset tests are services and activities that REITs are prohibited from performing. Services that are non-customary or rendered primarily for a tenant’s behalf (i.e., rather than those services normally performed in connection with the rental of space) such as special cleaning services (e.g., maid services) would not be able to be performed by REITs.
In order to ensure compliance with this rule, a REIT can establish a TRS, which is not subject to the same restrictions. However, it should be noted that a TRS is taxed on its net income as a regular corporation. Income Tests A REIT must have gross income the character of which meets certain percentage requirements each taxable year.
- Rents from real property.
- Interest on obligations secured by mortgages on real property or on interests in real property.
- Gain from the sale or other disposition of real property.
- Dividends and gains from the sale or other disposition of other REITs.
- Abatements and refunds of taxes on real property.
- Income and gain derived from foreclosure property.
- Amounts received or accrued as consideration for entering into agreements (a) to make loans secured by mortgages on real property or on interests in real property; or (b) to purchase or lease real property.
- Gain from the sale or other disposition of a real estate asset that is not a prohibited transaction.
- Qualified temporary investment income.
In order to meet the 95% test, at least 95% of a REIT’s gross income must be derived from sources described in the 75% test as well as from earnings from certain types of portfolio income such as interest, dividends and gains from sales of securities.
To ensure compliance, REITs may create a TRS to hold property or receive income that does not qualify under various tests. Qualifying income included in the category of rents from real property includes not only basic rent, but also includes rental escalations, charges for taxes, common-area maintenance charges (“CAMs”), etc.
Rents that are based in whole or in part on the gross receipts of a tenant may qualify, but rents contingent on profits would not. Noncompliance with the annual income testing requirements can either result in a 100% tax on disqualifying (bad income) or can result in the REIT losing its REIT qualification and thus subject it to corporate income tax on all of its income.
- Therefore, it is crucial that the annual income test be analyzed each year.
- Furthermore, REITs generally review year-to-date income on a quarterly basis to identify any potential issues while having sufficient time to cure any problems.
- Distribution Requirements In order to maintain REIT status, a REIT must distribute at least 90% of its taxable income in a tax year.
In conjunction with the distribution, a REIT is entitled to a deduction for such dividends paid and therefore REITs will generally distribute at least 100% of its taxable income to avoid entity-level tax. Due to the large amount of depreciation expense usually incurred by equity REITs, this requirement is generally not an issue as long as a REIT has sufficient cash flow.
- There is a mechanism in the tax code where a lack of sufficient cash flow to pay distributions will not cause a failure in the REIT’s status as a REIT, however, the election does require the shareholders to agree to recognize the income reported on the tax returns.
- Form 972 is used by a shareholder who agrees to recognize a consent dividend as taxable income in the form of a dividend on the shareholder’s own tax return, even though the shareholder receives no actual cash distribution of the consented amounts.
Other REIT Election Considerations Before deciding to form a REIT, it is important to consider an entity’s business plan and the makeup of the investors and their related preferences. If the business plan calls for short-term income from flipping both commercial and residential property, this would not be appropriate for the REIT structure.
A 100% tax is imposed on the net income from prohibited transactions that include the sale of property held for sale by an entity in the ordinary course of business (e.g., property held as inventory or short-term flipping of real estate). However, if investors are looking for long-term capital appreciation, a REIT could be a structure worth considering due to the tax advantages of being entitled to the dividend paid deduction.
Upon making the election, it is important to also decide on an Umbrella Partnership REIT (“UPREIT”) or DownREIT structure. An UPREIT is a structure in which the REIT owns its required real estate investment through an operating partnership. A DownREIT structure is typically used by existing REITs where a REIT owns properties directly in addition to its investment in an operating partnership.
The UPREIT structure permits deferral of a gain upon contribution of properties while allowing the contributing partner to obtain liquidity and diversification. If an owner were to contribute appreciated real property directly to a REIT, gain or loss would generally be recognized. Using an UPREIT structure would be an ideal way for a real estate owner to transfer his or her property to a REIT without recognizing a gain.
There are provisions to consider with an UPREIT structure that include the following:
- If property that is contributed has appreciated, the partnership agreement must provide that the contributing partner be allocated certain amounts of income, gain, loss, deductions, or credits not based on his/her partnership interest, but rather adjusted to take into account his/her basis in the property transferred. This generally will mean that the contributing partner will receive less depreciation deductions and will recognize a gain on any sale of the property, taking into consideration the original basis in the property.
- If property has a mortgage or other partnership-related debt, reduction of the debt may result in a deemed distribution (which may be taxable) to the contributing partner.
- If the contributing partner receives cash or marketable securities from the partnership at the time of transfer or within a time period thereafter (within two years), the partner may be treated as having sold his/her property, in whole or in part, rather than having contributed it the partnership and will recognize gain.
- The contributing partners remain subject to all the usual rules restricting use of losses, including passive losses and at-risk limitations.
- The partnership agreement generally includes provisions to protect the REIT partner, including that the partnership is required to make specified distributions to ensure the REIT can meet the 90% distribution test mentioned above.
REITs in the Future Absent any significant changes to the tax code, it is expected that REITs should continue to be favored in the industry as a form of organizational structure. As noted, there are many complex qualification requirements. As such, it is imperative you speak with your trusted business advisor.
How many countries have REITs?
There are currently 41 countries and regions, accounting for 85% of global GDP with a combined population of nearly 5 billion people, that have enacted REIT legislation.
Why REITs are not popular with investors?
Reason #9: Less Ideal for Experienced Investors – REIT investors do not have a say in real estate property purchase or management decisions, which makes them a good fit for investors who don’t have the time or expertise to do it on their own. For experienced investors, this structure may not be ideal as they may want more control over major investment decisions.
Are REITs doing well?
Outlook For REITs – The last year has not been good to REITs. As of February 15, 2023, the S&P U.S. REIT index was down more than 11% over the prior 12 months. By comparison, the S&P 500 dipped only 7.2% in the same time frame. There is some positive news: year to date the S&P U.S. REIT index is outperforming the S&P 500.
Why is REIT losing money?
REITs Are Getting Caught Up in the Wave of Banking Fear Ripples from worries about the banking system have claimed real estate investment trusts—known as REITs—as their most recent victim. The sector, favored by investors for its high dividend yields, has fallen nearly 10% in March.
Among the stocks hit hardest in the sector have been office REITs, which rent out office spaces and amenities to businesses. On average, office REITs saw their stock valuations drop about 24% during the month, making it the worst-performing industry in the sector during the month. The broad stock market, as measured by the Morningstar US Market Index, is down 1.4% during this time frame.
Among the REITs covered by Morningstar’s equity analysts, SL Green Realty, Vornado Realty Trust, and Boston Properties were some of the worst-performing REITs so far this month, falling at least 25%. REITs are companies that own portfolios of properties: office buildings, shopping centers, hotels, apartments, and more. The properties generate income from rent and capital appreciation. They differ from traditional stocks in that they are then required to pay out at least 90% of that income to investors in the form of dividends, making them an attractive play for income-focused investors.
Real estate stocks more broadly have suffered over the past year. The sector has fallen by nearly 26% from one year ago as higher interest rates increased companies’ funding costs, cut into earnings, and tempered expectations for shareholder returns. Meanwhile, the overall stock market is down 12.4% from a year ago.
The recent banking crisis has raised fresh concerns. Bianca Rose, senior portfolio manager at Morningstar Investment Management, argues that the recent bank run emphasized two risks to the real estate sector: tenant risk and financial system stability.
How are REITs doing 2023?
5 out of 18 Property Types Yielded Positive Total Returns in May – Only 27.78% percent of REIT property types averaged a positive total return in May, with a 17.9% total return spread between the best and worst performing property types. Hotels (+3.40%) and Single Family Housing (+2.69%) were the best performing property types in May.
- Hotels were boosted in May by the outsized returns of two very volatile micro cap REITs, InnSuites Hospitality Trust ( IHT ) (+41.73%) and Ashford Hospitality Trust ( AHT ) (+22.06%).
- Advertising (-14.50%) and Mall (-14.09%) REITs were the only property types that averaged double digit declines in May.
Two of the four Mall REITs, CBL Properties ( CBL ) (-0.30%) and Macerich ( MAC ) (-1.74%), actually outperformed in May, but the Mall REIT average was dragged down by the -47.12% collapse of Pennsylvania REIT ( OTC:PRET ). Source: Table by Simon Bowler of 2nd Market Capital, Data compiled from S&P Global Market Intelligence LLC. See important notes and disclosures at the end of this article Infrastructure (-29.84%) and Office REITs (-24.67%) continue to underperform and remain the worst performing property types thus far in 2023. Source: Table by Simon Bowler of 2nd Market Capital, Data compiled from S&P Global Market Intelligence LLC. See important notes and disclosures at the end of this article The REIT sector as a whole saw the average P/FFO (2023Y) decrease 0.6 turns in May from 13.2x down to 12.6x.
- The average FFO multiple expanded for 11.8% of property types, contracted for 82.4% and held steady for 5.9%.
- There are no recent 2023 FFO/share estimates for any of the Timber REITs.
- Land (29.9x), Data Centers (22.4x), Single Family Housing (20.0x) and Industrial (19.9x) currently trade at the highest average multiples among REIT property types.
Malls (4.5x), Office (6.8x) and Hotels (7.6x) are the only REIT property types trading at single digit multiples. Source: Table by Simon Bowler of 2nd Market Capital, Data compiled from S&P Global Market Intelligence LLC. See important notes and disclosures at the end of this article
What is the weakness of REITs?
Disadvantages of REIT Investment REITs are subject to interest rate risk, which is the risk associated with changes in interest rates. REITs may be subject to liquidity risk, making it difficult for investors to sell their REIT investments quickly.
Why are REITs struggling?
The Downfall of Commercial Office Real Estate – The U.S. commercial real estate market is feeling pressure from the pandemic, inflation, rising interest rates, and a banking crisis that could lead to a potential regional banking debacle. For the first time since 2011, U.S.
commercial real estate experienced a decline in the first quarter, citing banking industry chaos and the risk of more volatility in the financial sector. Although the decline was less than 1% and led by office buildings and multifamily residences, many companies have been reeling from an exodus from commercial spaces.
Long-time investor and Vice Chairman of Berkshire Hathaway Charlie Munger told Financial Times, “A lot of real estate isn’t so good anymoreIt’s not nearly as bad as it was in 2008We have a lot of troubled office buildings, a lot of troubled shopping centers, a lot of troubled other properties.
There’s a lot of agony out there.” When you factor in the convenience and flexibility of remote work environments challenging in-office work, many metro restaurants and businesses shut their doors as their customer number fell. Employees are saving in commute times and work-related costs, and with the expectation of further declines, the once top-performing sector in 2021 is now the worst, raising credit crunch and tenant risk concerns.
Morningstar senior portfolio manager Bianca Rose says, “There’s a difference between ‘interest rates are rising, my costs will go up, but I can access funding’ versus ‘you just can’t have the funding,” And now that lower interest rates appear a thing of the past, “what happens if all these businesses that were doing well from easy money now go bust? They’re tenants to someone.” This article is focused on avoiding office REITs.
- Dividend Benefits
- Inflation Protection
- Competitive Long-Term Performance:
- Portfolio Diversification
REITs have typically benefited from unexpected inflation, providing investors with a total return investment and some tax advantages, which is why its key to select Top REITs, But as we’re seeing, the risks inherent in real estate, particularly the commercial–office segment – are being hit hard, as the effects from banking and inflation have caused dividend yields to fall; office REITs lost more than 40% of their value in 2022; and capital offerings are down 17% M/M and more than 50% Y/Y. US capital offerings are down (S&P Global Market Intelligence) With capital raising decreasing by nearly 71% in the first quarter and many of the metropolitan cities experiencing muted demand, while higher quality assets continue to experience stronger, global vacancies have experienced the largest rise recorded in North America of 15.3% for Q1, according to JLL, global commercial real estate company.
What is better than REITs?
Key Takeaways –
REITs allow individual investors to make money on real estate without having to own or manage physical properties.Direct real estate offers more tax breaks than REIT investments, and gives investors more control over decision making.Many REITs are publicly traded on exchanges, so they’re easier to buy and sell than traditional real estate.
What is Europe’s largest REIT?
Vonovia – EU’s Largest Residential REIT – Vonovia ( $ VNA, $ VNNVF, ISIN: DE000A1ML7J1), is Europe’s leading private real estate company. Technically, it is not a REIT, but simply put can be seen as one, because it focuses solely on real estate. It specializes in residential properties, of which it owns +560,000 apartments in the most attractive cities of Germany, Sweden, and Austria.
How big is the REIT market in the US?
The real estate investment trusts (REITs) market in the United States compressed in 2022, reaching a market cap of 1.3 trillion U.S. dollars.
What is the largest REIT sector?
The 3 Largest REITs As Measured By Market Capitalization According to their market capitalization, Prologis Inc., American Tower Corp. and Realty Income Corp. are the three largest real estate investment trusts () traded on the New York Stock Exchange. Market capitalization is the figure you get when you multiply the number of shares outstanding by the current price — it’s the market value taken as a whole.
- It’s important to institutional investors and traders who like to see ample liquidity in the stocks they’re involved with.
- Some large money will avoid market caps below a certain figure and stick with the big stuff.
- In addition, it’s generally good to know who the market leaders are, and this is the most basic way of telling that.
Prologis Inc. (NYSE: ) is the biggest of the big with a market capitalization of $112.16 billion. It acquires and develops large real estate properties in the United States and around the world. This REIT, formerly known as Security Capital Industry Trust, went public in 1991 and changed its name to Prologis in 1998.
- Over the last 12 months, funds from operations (FFO) gained by 96%.
- For the past five years, FFO is negative 6.05%.
- Prologis pays a 2.61% dividend.
- American Tower Corp.
- NYSE: ), based in Boston, provides wireless communications infrastructure in 25 countries on 6 continents.
- With a market capitalization of $103.73 billion, the company trades with a price-earnings (P/E) ratio of 35 and a forward P/E of 48.
Funds from operations are up 49.5% over the last 12 months, and FFO growth over the past five years is up by 23%. American Tower pays a dividend of 2.79%. Realty Income Corp. (NYSE: ) has a market capitalization of $41.18 billion. The Provincetown, Rhode Island-based REIT has long-term net lease agreements with 11,700 retail and industrial properties.
Over the last 12 months, funds from operations decreased by 24% and in the past five years is off by 5.1%. Realty Income pays a monthly dividend with an annualized yield of 4.57%. Not investment advice. For educational purposes only. Weekly REIT Report: REITs are one of the most misunderstood investment options, making it difficult for investors to spot incredible opportunities until it’s too late.
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What is the 90% REIT rule?
How to Qualify as a REIT? To qualify as a REIT, a company must have the bulk of its assets and income connected to real estate investment and must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.
What is the largest industrial REIT in the world?
Prologis is the largest industrial REIT by a wide margin and one of the largest REITs overall.