Real Estate Investment Trust (REIT)
REIT, pronounced “reet”, stands for “real estate investment trust” and more than 87 million Americans actively own shares in various REITs, according to the National Association of Real Estate Investment Trusts.
Originated in the US in 1960 and quickly followed by Australia in 1971, Canada 1993, Japan 2001, Germany & U.K. 2007, REITs have been allowing people to invest in income-producing real estate (or mortgages) without having to buy, manage or finance the property themselves.
A real estate investment trust (“REIT”) is a trust that owns, operates or finances income-producing real estate. REITs provide an investment opportunity, like a mutual fund, that makes it possible for everyone to benefit from valuable real estate, and presents the opportunity to access dividend-based income and total returns.
REITs allow anyone to invest in portfolios of real estate assets the same way they invest in other industries – through purchasing individual company stock or through a mutual fund or exchange-traded fund (ETF). The stockholders of a REIT (unitholder) earn a share of the income produced – without actually having to go out and buy, manage or finance the property.
Most REITs operate along with a straightforward business model: By leasing space and collecting rent on its real estate, the company generates income which is then paid out to unitholders in the form of dividends. REITs must pay out at least 90 % of their taxable income to unitholders. Unitholders also get capital gains when a REIT sells real estate assets and realizes profits.
- REIT Manager: manages the REIT and assets of the REIT. The REIT Manager has general management power over the asset of REITs including strategic direction, asset acquisitions and divestments, and capital management.
- Property Management: provides property management services for the properties of the REIT
- REIT Trustee: The REIT trustee holds the assets of the REIT on behalf of the unitholders and generally ensures that the REIT complies with applicable rules and regulations.
- Sponsor: The sponsor is the party that injects the initial portfolio of assets into the REIT and will continue to provide the REIT with a pipeline of assets moving forward. Typically, the sponsor holds a substantial stake in the REIT and/or the REIT manager.
Investing in a REIT gives you access to:
- The low investment scale with high liquidity: Real estate investment opportunities with low capital and liquidity will be much higher than investments in the whole project.
- The most accessible and easier way to invest in a liquid diversified portfolio of real estate assets, without the need to manage anything on your own: All real estate assets owned by REITs are managed, operated and exploited by an asset management unit.
- The steady, stable return and low-risk investment option: REITs operate on a simple and straightforward business model by acquiring real estate assets, leasing and collecting rents on its real estate, the income generated will be paid at least 90% to unitholders in the form of dividends.
- The transparency and trusted investment option: Independent auditors, analysts and auditors, as well as the business and financial media monitor listed REITs’ performances and outlook. This oversight provides investors with a measure of protection and more than one barometer of a REIT's financial condition.
- Equity REITs – The majority of REITs are publicly traded equity REITs. Equity REITs own or operate income-producing real estate. The market and Nareit often refer to equity REITs simply as REITs.
- mREITs or mortgage REITs 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.
- Public Non-listed REITs – Public, non-listed REITs (PNLRs) are registered with the SEC but do not trade on national stock exchanges.
- Private REITs – Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.
Over the last 20 years, Equity REITs (FTSE NAIREIT index) have delivered an average total annual return of 10.66% — compared with 6.19% and 7.77% for the Russell 1000, and Russell 2000 indexes, respectively (Source: NAIREIT analysis of total monthly returns through June 2019).
In Vietnam, this average growth rate of the Real Estate market is 15%–25% yield on year. This outstands the growth rate of most markets in the world and allows an appealing investment opportunity for retail investors.