What Are Real Estate Investment Trusts?
Real estate investment trusts (REITs) are corporations that own, manage and develop property. The main objective of REITs is the generation of income through the leasing of their buildings to tenants. REITs invest in nearly every property class. Some of their main classes include office, retail, apartment and industrial assets. Health facilities, student housing and senior care centers are also investable assets. Some REITs specialize in a specific asset class, such as hospitals. Others manage diverse portfolios across a variety of property types.
The Structure of Real Estate Investment Trusts
Many types of companies own and invest in real estate. Real estate investment trusts are one among many. Other common investors include pension funds, private equity and other institutions. The main difference is that REITs are publicly traded on stock exchanges, similar to other large corporations. Any person can buy a share of a REIT via a stock exchange. And like other publicly traded companies, they provide “dividends” in the form of net income from their leasing revenues.
The unique aspect of REITs is that they must legally distribute a majority of their taxable income in the form of dividend “yields” to their shareholders (i.e. individuals and groups who own their stocks). The structure of REITs differs globally. In the United States, a REIT must distribute 90% of its taxable income to its shareholders.
Investors in real estate investment trusts can make money in two main ways.
- The dividend yield of the income
- The expected appreciation of the stock price itself
Dividend yields are generally reflective of the rate of return for the income component of the REIT stock. Yields generally range from 3 to 10%. The combination of income returns and capital appreciation are the “total return” for holding the REIT stock. For example, if a REIT has an annualized yield of 5% and the share price of the stock grows by 3% over the same time period, the total return would be 8%.
REITs and Capital Management
Real estate investment trusts are a major player in commercial real estate. They own some of the largest and highest quality properties globally. Though REIT entities have been around since the 1960s, they have expanded in the last two decades.
The structure of REITs differs from other corporations that own real estate. However, their focus is virtually the same. Their goal is to increase rental income while keeping operating costs low. REITs have to be transparent. They are publicly traded, and their financial information is accessible. Because of that, their decisions are closely scrutinized. REITs must balance operational goals with shareholder value in their property investments.
REITs and Property Management Software
Real estate investment trusts are complex entities. More and more, their decisions are reflective of investor demand. Investor priorities have an effect on the decisions made by the managers. For example, if investors value the environment, the REIT may want to invest in LEED certified buildings. Some areas this affects include capital expenditures, building quality and financial performance. When the quality of tenants and properties increases, so does the current and expected value of the company.
As such, REITs benefit a great deal from property and investment management software. Solutions such as 4tell™’s iPlan™ Portfolio Solution will enhance their operations and capital strategies. Investors want to know the REIT is functioning as efficiently as possible. Technology and software an important part of that.
Are you interested in learning more about real estate investment trusts or the property management technologies available to them? If so, please contact 4tell™ Solutions for more information.
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