Met up with friend today for dinner. I try to explain difference between Reits and Business Trusts, but somehow it is not very convincing. Here is link to explain in detail. 

Dividends



Most common reason to invest in Reits or Trusts is for the dividend return. Extracted herewith – “The attractiveness of Reits or Trusts
lie in their ability to pay a regular and stable dividend. This is a big plus
in a portfolio. Re-search into long-term returns shows that reinvested
dividends comprise the bulk of returns, compared to capital appreciation.”


The main difference explain as follows, although there are more differences as show in earlier link or as shown in the structure/table below. 

Trustee & Manager

Reit – assets are held by a trustee
on unitholders’ behalf.  Separation of
roles between trustee and the manager.  
Trusts – hybrid structure which
trustee has legal ownership of trust assets and mange assets for unitholders’
benefit.

Leverage

Reits – gearing limit of 35 per
cent. This can be raised to 60 per cent if the Reit obtains, discloses and 
maintains a credit rating from
rating agencies. 
Trusts – no explicit cap on borrowings and may set their own limits. (not neccesary bad since have more flexibility in borrowing
of funds to grow its business.)

Dividend distribution

Reits – Must distribute min. 90% of
income to enjoy tax transparency under Income Tax Act.
Trusts – No requirement to
distribute, but the trust may pledge to distribute a certain percentage of
income as dividends. E.g. Croesus Retail Trust pledge 100% distribution for
first 2 years after IPO last year.



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3 thoughts on “Reits or Business Trusts?

    1. Hi Leona,

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