Transfer to Trust Capitalize on REIT Opportunity

Transfer to REITs and UNIT TRUSTS - 2020 Incentives for Organized Forms of Real Estate Investments

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Non-traditional REITs have performed better financially relative to the traditional ones during the past 5+year (2011-2017), 10+year (2006-2017), and 20+year period (1996-2017), likely due to the distinctive features of the varied non-traditional REIT subsectors.

TIER2. Learn how you can capitalize on the opportunity:

Traditionally, owners of commercial properties, such as retail, office, industrial, multifamily, hotels, and healthcare, have adopted a real estate investment trust (REIT) structure due to its inherent benefits. Over the past few years, an alternate REIT segment has emerged, comprised of owners of the income-producing real estate such as timber, data centres, document storage facilities, cell towers, prisons, and billboards. These companies have opted to convert to a REIT to capitalize on the benefits of the structure, and are classified as “non-traditional” as the underlying assets have different and unique characteristics compared to the owners of traditional properties.

An analysis of the post-conversion performance of one of the non-traditional REIT sub-sectors (timberland) reveals that the subsector grew, and shareholder return and market valuation were higher.

In addition, timber REITs outperformed their C-Corp peers on all the performance parameters that we have enumerated, during the 10-year period. That said, a REIT conversion is a complex process and requires strategic, financial, and operational restructuring to comply with regulations for Priorities:

Priority 1: A REIT conversion will support future growth within 2018-2020 shift

Priority 2: Potential converts may need to consider financial restructuring in order to both meet dividend distribution requirements to maintain REIT status and to derive the tax benefits


Sponsors create REITs under Managed Funds to unlock the underlying capital appreciation of owned real estate, enhance sponsor liquidity and provide cash flow to the sponsor's equity holders. Other benefits of REITs from a sponsor's perspective include:

  • the opportunity to dispose of an entire portfolio of properties
  • the chance to reorganise assets, allowing the value of the assets and cost efficiency to be effectively optimized
  • the potential to earn income from the provision of ongoing management services to the REIT achieving higher standards of governance with an independent trustee overseeing the operations
  • obtaining access to a wider pool of investors.

For investors, REITs allow them to invest in a liquid, income-yielding asset which can give them diversified exposure to the real estate market with a much smaller scale investment than would be possible using direct investment in Real Estate.

Real Estate Investment Trusts (REITs) along with Property Securities Funds provide opportunities for individuals and institutional investors to invest in commercial, industrial, residential and recreational real estate businesses. The needs of the investors present REIT operators with unique challenges not faced by other businesses in the Real Estate market.

As the majority of current earnings are distributed by a REIT, any fluctuation in the earnings is immediately reflected in the unit price. The market's swift reaction to changes in reported earnings is a challenge to management. Management focus is generally increased in four areas that have a direct impact on the volatility of earnings:

  • Investment considerations
  • Fluid Cash and Swaps management.

The Real Estate Investment Trust (REIT) shall have opted as a new corporate income tax (CIT) exempt vehicle for certain real estate investments:

According to the Wealth 2020 outlook, the proposal is aimed at attracting investors who to date have not entered the real estate market or, due to lack of sufficient local incentives, operated via other investment structures.

The REIT is also envisaged as a platform to allow smaller investors to participate in the commercial real estate market, despite high natural entry thresholds on this market.

REITs demonstrate a positive intention to offer new incentives for organized forms of real estate investments. At this stage, the REIT opportunists remain silent on certain aspects which would be desired for more comprehensive regulation.


The last 12 months have seen a clutch of public-to-private deals led by private equity real estate managers. The trend continues, thanks to rising levels of dry powder among real estate funds, some attractive pricing for the REIT sector and shareholder activism.

The attractiveness of the sector to buyers stems back to actions taken by REITs following the downturn. Many REITs took advantage of a high level of available and lower-cost capital to refinance and clean up their balance sheets. In addition, many sold off assets that were non-core or were on their strategies to divest.

As a result, in front of 2020  - REITs are in relatively good shape, characterized by lower risk, better yields, and better capitalization.


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