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.
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.
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.
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.)
of funds to grow its business.)
Dividend distribution
Reits – Must distribute min. 90% of
income to enjoy tax transparency under Income Tax Act.
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.
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.
Thanks for the info. This is just what I was looking for. I am currently researching this topic so I will be back. Can you tell me how to subscribe to your blog?
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Rolf
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