REIT Case Study

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Another advantage associated with REITs is the requirement to pay a high percentage of the revenue to its shareholders – in the US it is defined that at least 90% of the revenue has to be distributed each year (Krewson-Kelly and Thomas, n.d.). In certain cases, the REITs are choosing to distribute up to 100% of its ordinary income and capital gains as this enables to save most of the taxes that would otherwise be payable at the entry level (Simontacchi and Stoschek, 2011). Same as in the US, in countries such as the UK, Argentina, South Korea et al, it is also mandatory for REITs to distribute 90% of the total revenue (Stooker, 2014). In the UAE the minimum dividend payment requirement stands at 80% of the total audited annual net income (Enbdreit.com, …show more content…

The large portion of the annual profit that is distributed through dividends (80% to 90% depending on the jurisdiction, as elaborated above) has a short-term positive aspect for investors; however, the remaining 10% of profit available for reinvestment is limiting the REITs growth potential. The fund managers, when seeking to increase further acquisition potential are usually seeking funds from financial institutions which is increasing the interest payments and decreasing the future profits. Apart from these risks there are also other potential disadvantages related to the cyclic nature of real estate market (such as a potential capital depreciation) and the increasing property taxes in some jurisdictions (Barnes, …show more content…

Shun, 2005). However, for the purpose of this research and later analysis of the REITs performance and comparison to S&P 500 index, the classification of REITs based on the investment philosophy will be elaborated. According to this classification criterion, REITs can be classified into the following categories (Fabozzi, Anson and Jones,

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