REIT - Real Estate Investment Trust

A REIT, is either a publicly listed closed or open-ended trust that allows investors to purchase units of a trust that holds primarily income producing real estate assets. The larger REITs are internally managed and will generally also have their own internal property management operation, which helps to lower the cost of operations. The smaller REITs, in order to remain competitive, have developed a shared management platform where the assets and strategic management are shared, usually with the sponsor, and the property management function is either internal or external to the REIT.

So, how does a REIT make its money? In several ways —

Buying and selling property, thus pocketing gains from any appreciation in value

Developing commercial space

Renting and leasing commercial space, and

Financing mortgages and loans on property.

Some of the key features of a REIT are:

High yield through regular distributions

Capital appreciation

Taxation

Distributable Income

Market Performance

Focused Asset Base

What to look for in a REIT

An experienced sponsor with a proven track record for the property type of the REIT;
• A focused portfolio
• Strong net operating income, cash flow and sustainable income growth (
• Limited debt
• Management that holds a significant investment in the REIT (10% to 20%) as this aligns
management's behaviour with investors' goals;
• Sufficient size to capture the brokerage community's interest, to ensure adequate liquidity and attract institutional investors.
• An infinite life (rather than a finite one), and the ability to use sales proceeds to finance accretive new property acquisitions, and not be required to distribute capital gains