AN INTRODUCTION TO REITS
Real estate investment trusts (“REITs”) were created in 1960 after Congress passed legislation to provide for a new tax-advantaged method by which all types of investors could have the opportunity to invest in a professionally managed portfolio of real estate assets. Any entity that qualifies as a REIT is entitled to special and beneficial federal income tax treatment so long as it satisfies various requirements relating to organization, ownership, distributions and the nature of assets and income.
Over the past several years, the popularity of REITs has waxed and waned. However, fundamentals across many REIT sectors remain strong and initial public offerings (“IPOs”) of REITs remain both a key path to the realization of REIT and real estate investor liquidity and a potential long-term corporate finance strategy for real estate companies seeking to access the public capital markets.
REIT is an investment vehicle designed to allow investors to pool capital to invest in real estate assets. REITs have certain advantages over other investment vehicles; in particular, a REIT is not subject to corporate-level U.S. federal income tax on the taxable income that it distributes to stockholders even if its equity is publicly traded. REITs remain attractive to investors for this reason, despite the impact of the recently enacted tax code reform. Investors seeking current income through regular distributions choose to invest in REITs because REITs must distribute at least 90% of their taxable income in order to maintain REIT status. REITs generally finance their activities through equity and debt offerings. Although there is an active private market for REIT securities, REIT sponsors often have chosen to pursue IPOs
The industry and asset focus of REITs is diverse. Most broadly, there are equity REITs and mortgage REITs. Equity REITs primarily own interests in incomeproducing real property that is leased to tenants. Equity REITs typically concentrate on a market segment (for instance, office, retail, commercial, residential or industrial properties) or a specific industry segment (e.g., healthcare or lodging properties).