What are REITs? What are the classifications of REITs? Many friends don't quite understand what this word means when they hear it for the first time, so let's learn about it with Xiaobian!
What is REITs?
Real estate trust and investment funds (REITs) are important means of real estate securitization. Real estate securitization is a financial transaction process that directly converts the low liquidity and non securities real estate investment into securities assets in the capital market. Real estate securitization includes two basic forms: real estate project financing securitization and real estate mortgage securitization.
What are the characteristics of REITs?
1. Income mainly comes from rental income and real estate appreciation; What are REITs? What are the classifications of REITs? Many friends don't quite understand what this word means when they hear it for the first time, so let's learn about it with Xiaobian!
2. Most of the proceeds will be used to pay dividends;
3. REITs have a high long-term return, but it is still controversial whether they can diversify investment risks through them. Some people think it can and others don't?
REITs (real estate investment trusts) is a trust fund that collects the funds of a specific majority of investors by issuing income certificates, operates and manages real estate investment by special investment institutions, and distributes the comprehensive investment income to investors in proportion. Unlike China's trust, which is purely private, REITs in the international sense are equivalent to funds in nature, a few are private, but the vast majority are public.
REITs can be either closed-end or listed for trading and circulation, which is similar to open-end funds and closed-end funds in China. In the past two decades, North America has the best REITs return (13.2%), followed by Europe (8.1%), and Asia has the lowest average REITs return (7.6%); Due to the impact of the European debt crisis, the yield of REITs in Europe dropped rapidly to - 9.2%, while REITs in North America achieved an average yield of 12.0%. It can be seen that the degree of real estate prosperity in different countries and regions is often quite different in different time intervals.
The charm of REITs lies in: through the 'collection' of funds, it provides small and medium-sized investors with opportunities to invest in the lucrative real estate industry; Professional managers use the raised funds for the real estate investment portfolio, dispersing the real estate investment risk; The equity owned by the investor can be transferred and has good liquidity.
What are the types of REITs?
From different perspectives, there are many different classification methods for REITs. The common classification methods are as follows:
1. According to the organizational form, REITs can be divided into company type and contract type.
Corporate REITs is based on the company law. The funds raised by issuing REITs shares are used to invest in real estate assets. REITs has independent legal personality, operates the fund independently, and raises fund shares for unspecified investors. The holders of REITs shares eventually become the shareholders of the company.
Contractual REITs, based on the establishment of trust contract, raise funds by issuing beneficiary certificates and invest in real estate assets. Contractual REITs itself is not an independent legal person, but only an asset, which is initiated and established by the fund management company, in which the fund manager, as the trustee, accepts the entrustment to invest in real estate.
The main difference between the two lies in the different legal basis for establishment and mode of operation. Therefore, contractual REITs are more flexible than corporate REITs. Corporate REITs dominate in the United States, while contractual REITs are more common in Britain, Japan, Singapore and other places.
2. According to different investment forms, REITs can usually be divided into three types: equity type, mortgage type and hybrid type.
Equity REITs invest in real estate and have ownership. More and more equity REITs begin to engage in real estate business activities, such as leasing and customer service. However, the main difference between REITs and traditional real estate companies is that the main purpose of REITs is to operate real estate as a part of the investment portfolio, rather than resale after development.
Mortgage REITs are investment real estate mortgage loans or real estate mortgage-backed securities, and their income mainly comes from the interest of real estate loans.
Hybrid REITs, as its name implies, is between equity REITs and mortgage REITs. It owns some property rights and is also engaged in mortgage services.
The vast majority of REITs circulating in the market are equity REITs, while the other two types account for less than 10%. Equity REITs can provide better long-term investment return and greater liquidity, and the market price is more stable.
3. According to different operation modes, there are two types of REITs: closed REITs and open REITs.
The issuance of closed REITs is limited at the beginning of issuance, and no additional shares shall be issued arbitrarily; Open REITs can issue new shares at any time in order to increase capital investment in new real estate. Investors can also buy at any time and redeem at any time when they are unwilling to hold. Closed REITs are generally listed and circulated in stock exchanges. When investors do not want to hold them, they can be transferred and sold in the secondary market.
4. According to the different ways of fund raising, REITs are divided into public offering and private placement.
Private REITs raise funds from specific investors in a non-public way. The raising object is specific, and public publicity is not allowed. Generally, they are not listed for trading.
Public offering REITs raise trust funds from public investors in the form of public offering. The issuance needs to be strictly approved by the regulatory authority, and a lot of publicity can be carried out.
The main differences between private REITs and public REITs are:
First, in terms of investment objects, private funds are generally oriented to specific customers with large capital scale, while public funds are uncertain;
Second, in terms of investment management participation, private fund investors have greater influence on investment decision-making, while public fund investors do not have this influence;
Third, in terms of legal supervision, private funds are relatively less restricted by laws and regulations, while public funds are usually subject to more legal restrictions and supervision.