Introduction to Real

Introduction to Real - Introduction to Real Estate...

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Introduction to Real Estate Investment Trusts VINOD KOTHARI 1012 Krishna 224 AJC Bose Road Calcutta 700 017. India Phone 91-33-22813742/ 22811276/ 22817715/ Fax: 22811276 e-mail: [email protected]
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Vinod Kothari REITs 2009 2 Real estate securities ± Reasons for adding real estate in investment portfolio: ± Real estate is globally the biggest asset ± Presumption is that real estate has low correlation with the rest of financial securities ± Investing in real estate has several problems ± Availability ± Ticket size ± Management problems ± Hence, intermediated investment through real estate securities came up ± Real estate securities include: ± REITs ± REOCs ± Mortgage-backed securities ± ETFs/ real estate mutual funds ± Synthetic investment by investing in real estate indices
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Vinod Kothari REITs 2009 3 Meaning of REITs ± A collective investment device of commercial real estate ± Equity-type funding ± REITs versus CMBS: ± CMBS is securitised debt lending against real estate ± REITS are security equity funding of real estate ± REITs ± Owns, and in most cases operates, income-producing property (Equity REITs) ± Office ± Apartment ± Retail (shopping centers) ± Hotels ± Warehouses (storage) ± Some REITs also finance real estate (Mortgage REITs) ± Essentially a tax-tool where equity funding of real estate is allowed on tax transparent basis: ± Minimum 90% dividend ± REITs are typically listed and quoted
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Vinod Kothari REITs 2009 4 REITs as property investment vehicle Real Estate Investment Direct Investment Indirect Investment Listed Property Stocks REITs Non-listed Close-End Funds Partnerships Open-End Funds Mutual Funds Commingled Funds Syndication, JVs, TIC Special Funds Hedge Funds REITs Fund-of-Funds REITs have some 34% share in listed property investments.
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Vinod Kothari REITs 2009 5 Commercial real estate as asset class 0 1 02 03 04 05 0 Corporate bonds Government bonds Equities Commercial property Residental property Exhibit 1: More bricks than bonds Developed economies' stocks of assets end 2002 ($trillion) Source: The Economist
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Vinod Kothari REITs 2009 6 Typical REIT structure
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Vinod Kothari REITs 2009 7 REITs and Mutual funds/ collective investment schemes ± While mutual funds may be open-ended, REITs are closed-end funds. As such, REITs are typically listed and their market values may or may not be their NAVs. ± Owing to nature of their assets, computation of NAVs by REITs is different from that by securities mutual funds ± REITs are income-oriented ± Investors relying on regular income have incentive to invest in REITs ± Statutorily, REITs distribute substantial part of their taxable profits
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Vinod Kothari REITs 2009 8 Major Player/Capital Sources: Equity: ± REITs are major sources of equity for real estate, mainly commercial real estate today ± JP Morgan Asset management estimates total investment grade, income producing CRE to be USD 6.4 trillion ± 3.5 trillion debt ± 2.9 trillion equity ± 5.9 trillion private ± 0.5 trillion public ± of the USD 2.9 trillion equity, approx USD 500 billion is owned by REITs
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Vinod Kothari REITs 2009
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This note was uploaded on 10/09/2011 for the course 323 3232 taught by Professor 3232 during the Spring '11 term at Apex College.

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Introduction to Real - Introduction to Real Estate...

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