The term REIT indicates a public limited company, whose assets exclusively consist of properties. The earnings of REITs originate from both the sale and the letting or leasing of properties and plots of land. In contrast to property corporations, REITs are characterised by tax benefits (exemption from corporation and trade tax at company level) as well as the compulsory payout ratio (at least 90% of the year-end result under commercial law).
A public limited company must satisfy various requirements in order that it can obtain the German REIT status. The following should be mentioned here, amongst other factors:
- Stock-exchange listing
- > 15% free float ratio
- > 75% of the assets must be invested in properties
- > 75% of earnings must originate from property management
- > 90% payout ratio of the profit for the financial year under the German Commercial Code
- > 45% equity ratio
- < 10% directly held shares per shareholder
Advantages of an investment in a REIT
Investment in properties via a REIT offers several advantages compared with conventional types of investment in properties which result in a comparatively higher yield. The tax exemption at company level as well as the high-quality management of the properties makes possible the high distribution of earnings in the short and long term. In particular, tax-exempt or tax-privileged investors enjoy a specific advantage as a result.
However, the REIT is also an attractive investment possibility for other groups of investors such as insurance companies, because here REIT shares are included in the more low-risk property allocation and not in the share allocation.
REITs are a globally acknowledged standard for indirect property investments. The shares are easily tradable due to the stock-exchange listing and offer a high degree of liquidity.