FAQ Real Estate Investment Trust Morrison Foerster | 2 REITs are also often characterized by whether they are public or private and whether they trade on a national securities exchange. Listed REITs are public companies that trade on a national securities exchange such as the NYSE or Nasdaq and are required to make filings with the Securities and Exchange Commission (the “SEC”). REITs that are required to make filings with the SEC, but that do not trade on a national securities exchange, are referred to as non-traded or non-listed REITs. See “Non-Traded REITs” below. Finally, private REITs are REITs that neither make filings with the SEC nor have securities that trade on a national securities exchange. When and why were REITs created? Congress passed the original REIT legislation in 1960 in order to provide a tax-preferred method by which all types of investors could invest in a professionally managed portfolio of real estate assets. Many of the limitations imposed upon the operation of REITs and the taxes to which they are potentially subject are perhaps best understood in terms of the original notion that the activities of REITs were to consist predominantly of passive investments in real estate. Do other countries have REITs? A number of countries, including Australia, Brazil, Bulgaria, Canada, Finland, France, Germany, Ghana, Hong Kong, India, Japan, Malaysia, Mexico, Nigeria, Pakistan, Philippines, Saudi Arabia, Singapore and the United Kingdom, have REIT-type legislation. The details of the rules may vary from the U.S. rules and from country to country. Structuring A REIT What types of entities can be REITs? Virtually any type of entity can qualify as a REIT, including corporations, trusts, partnerships and limited liability companies, as long as the entity would be taxed as a domestic corporation if it did not qualify to be treated as a REIT. The relevant regulations provide that an entity eligible to elect to be taxed as a corporation will be deemed to have so elected as a result of electing REIT status. How is a REIT formed? A REIT is formed by organizing an entity under the laws of one of the 50 states or the District of Columbia as an entity eligible to be taxed as a corporation for federal income tax purposes, and by electing to be treated as a REIT. An entity may elect to be treated as a REIT for any taxable year by filing with its tax return for that year an election to be a REIT. Where are REITs typically formed? Most public REITs are formed in Maryland as corporations under the Maryland General Corporation Law (the “MGCL”) or as real estate investment trusts under the Maryland REIT law. The popularity of Maryland as the preferred jurisdiction of formation for most REITs can be attributed primarily to statutory provisions that are REIT-friendly and a state judiciary that has developed expertise in REIT matters. There also are other benefits to forming in Maryland. For instance, while some jurisdictions impose franchise taxes and other costs of being incorporated (which can be as high $200,000 annually), Maryland has no franchise tax. The MGCL also permits a Maryland corporation to eliminate the potential liability of directors and officers to stockholders with only two very narrow exceptions—actual receipt of an improper personal benefit and active and deliberate dishonesty. Furthermore, Maryland has an explicit statutory standard of conduct that governs the duties of directors rather than relying primarily on everdeveloping case law. The MGCL also permits the board of directors of a Maryland corporation to increase the aggregate number of authorized Source: Nareit Public REITs by Sector (as of 1/31/24) Data Center 2 Industrial 33 Residential 28 11 Morgage 19 Self-Storage Diversified 12 Lodging 19 Retail 7 12 Office 4 Specialty 1The substantial majority of listed REITs are listed and traded on the NYSE.
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