Introduction
The report presents a case about AMB, which is a leading pension real estate advisory firm that has recently proposed to turn itself into a publicly traded Real Estate Investment Trust (REITs) and is planning to persuade its client to contribute their real estate assets to create a new REIT. Furthermore, the report also includes considerations of Anne Shea, who is the Assistant Vice President at Curator’s Fund; which is considering exchanging her shares in the commingled fund for the shares in the REIT.
Real Estate Investment Trust (REITs)
Real Estate Investment Trust (REITs) invests in and own properties by offering investors a highly liquid method of investing in high-density markets. Most REITs earn their revenue from property rent and leases. In order to boost real estate investments, REIT receives special tax consideration for investing in highly liquid market i.e. if more than 75% of their profits are generated through rents from real estate property and they distribute at least 90% of their current period profits as dividend to shareholders, then the trust will not be subjected to corporate tax.
Advantages and Disadvantages of Public Real Estate
The advantages of a REIT are as follows:
a) Liquidity: Public REITs are more liquidate as compared to private REITs. Public REIT shareholders can easily exchange their shares in the stock exchange.
b) Low sales commission: Brokers charge low sales commission on public REITs as compared to private REITs, which provides an opportunity for investors to retain high cash flows in order to invest in further shares.
c) Information easily available: The information of public REIT is easily available as compared to private REIT; which will benefit the investors in its valuation and in future potential decisions.
The disadvantages that need to be considered when investing in a REIT are:
a) High agency