1. Real Estate Investment Trusts REITs Cody Draper Valiant Evans Ryan Weight

2. Congressional Act Congress created REITs in 1960 to enable small investors to make investments in large-scale, income-producing real estate. Congress decided that the only way for the average investor to access investments in significant commercial properties was through pooling arrangements. As a result, Congress designed REITs to unite the capital of many into a single economic enterprise. That enterprise is geared to the production of income through commercial real estate ownership and finance.

3. What are REITs? A REIT is a company that buys, develops, manages and sells real estate assets. A REIT is a company that buys, develops, manages and sells real estate assets. REITs allow participants to invest in a professionally-managed portfolio of real estate properties. REITs allow participants to invest in a professionally-managed portfolio of real estate properties. REITs qualify as pass-through entities, companies who are able to distribute the majority of income cash flows to investors without taxation at the corporate level (providing that certain conditions are met). REITs qualify as pass-through entities, companies who are able to distribute the majority of income cash flows to investors without taxation at the corporate level (providing that certain conditions are met). Managed by a board of directors or trustees Managed by a board of directors or trustees Minimum of 100 shareholders Minimum of 100 shareholders Pays dividends of at least 90 percent of REIT's taxable income Pays dividends of at least 90 percent of REIT's taxable income At least 75 percent of total investment assets must be in real estate At least 75 percent of total investment assets must be in real estate Derive at least 75 percent of gross income from rents or mortgage interest Derive at least 75 percent of gross income from rents or mortgage interest Dividend Yield = Dividend per share / Price per share = 8% – 12% Dividend Yield = Dividend per share / Price per share = 8% – 12%

4. Type of REITs Equity REITs (96.1%) own and operate income-producing real estate. Their revenues come principally from their properties' rents. Equity REITs (96.1%) own and operate income-producing real estate. Their revenues come principally from their properties' rents. Mortgage REITs (1.6%) lend money directly to real estate owners and operators or extend credit indirectly through the acquisition of loans or mortgage- backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. Mortgage REITs (1.6%) lend money directly to real estate owners and operators or extend credit indirectly through the acquisition of loans or mortgage- backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. Hybrid REITs (2.3%) both own properties and make loans to real estate owners and operators. Hybrid REITs (2.3%) both own properties and make loans to real estate owners and operators.

5. Other Classifications Type of property... Some REITs invest in a variety of property types: shopping centers, apartments, warehouses, office buildings, hotels, etc. Other REITs specialize in one property type only, such as shopping centers or factory outlet stores. Type of property... Some REITs invest in a variety of property types: shopping centers, apartments, warehouses, office buildings, hotels, etc. Other REITs specialize in one property type only, such as shopping centers or factory outlet stores. Geographic focus... Some REITs invest throughout the country. Others specialize in one region only, or even a single metropolitan area. Geographic focus... Some REITs invest throughout the country. Others specialize in one region only, or even a single metropolitan area.

6. What to look for… Check the prospectus or annual report for REITs with established track records. Check the prospectus or annual report for REITs with established track records. Look for managers who have weather several real estate cycles. Look for managers who have weather several real estate cycles. Look for management teams that have been together for awhile. Look for management teams that have been together for awhile. Look for REITs that have recently added a new source of funding (the institution must feel comfortable with management). Look for REITs that have recently added a new source of funding (the institution must feel comfortable with management).

7. What to look for… Focus on REITs with high levels of institutional and insider ownership. A minimum of 10% of outstanding shares is recommended. Inside ownership averages 18% for the REITs tracked by New York-based Cohen & Steers Capital Management. Focus on REITs with high levels of institutional and insider ownership. A minimum of 10% of outstanding shares is recommended. Inside ownership averages 18% for the REITs tracked by New York-based Cohen & Steers Capital Management. Is executive compensation tied to appreciation in the stock price? Is executive compensation tied to appreciation in the stock price? It's important that the individual REITs are diversified by property type and geographic location. It's important that the individual REITs are diversified by property type and geographic location.

8. What to look for… Don't be lured by high yields alone. Don't be lured by high yields alone. A good measure to look at is Funds From Operations (does not include depreciation). Be sure to look at the age of the companies assets. A good measure to look at is Funds From Operations (does not include depreciation). Be sure to look at the age of the companies assets. Check the debt levels. Institutional investors suggest debt levels no higher than 35% of total capitalization. Also, REITs with a lot of variable-rate debt will be hurt if rates keep rising. Check the debt levels. Institutional investors suggest debt levels no higher than 35% of total capitalization. Also, REITs with a lot of variable-rate debt will be hurt if rates keep rising. When analyzing prices use the funds for operations to calculate a cash flow multiple. Current cash flow multiples range from 8 to 15, depending on the properties. When analyzing prices use the funds for operations to calculate a cash flow multiple. Current cash flow multiples range from 8 to 15, depending on the properties.

9. Strengths and Weaknesses Strengths: Strengths: Dividends are higher than those of common stocks. Dividends are higher than those of common stocks. The performance of a REIT follows the real estate market closer than the stock market. The performance of a REIT follows the real estate market closer than the stock market. Weaknesses: Weaknesses: Dividends are taxed at the same rate as income tax, so the higher dividends mean you will likely pay more taxes on it. Dividends are taxed at the same rate as income tax, so the higher dividends mean you will likely pay more taxes on it. Mortgage REITs tend to do poorly as interest rates are rising. Mortgage REITs tend to do poorly as interest rates are rising.

14. REIT Clienteles People with low marginal tax rates People with low marginal tax rates Individuals interested in fixed income securities Individuals interested in fixed income securities Pension funds and insurance companies Pension funds and insurance companies People in high marginal tax brackets who can put REITs in tax-advantaged accounts People in high marginal tax brackets who can put REITs in tax-advantaged accounts

15. References http://www.nareit.com/ http://www.nareit.com/ http://www.nareit.com/ http://www.investopedia.com/categories/realestate.asp http://www.investopedia.com/categories/realestate.asp http://www.investopedia.com/categories/realestate.asp http://www.reitnet.com/main.phtml http://www.reitnet.com/main.phtml http://www.reitnet.com/main.phtml

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