Academic journal article Journal of Real Estate Literature

Review Articles: An Overview of Equity Real Estate Investment Trusts (Reits): 1993-2009

Academic journal article Journal of Real Estate Literature

Review Articles: An Overview of Equity Real Estate Investment Trusts (Reits): 1993-2009

Article excerpt


This study documents the publicly traded equity real estate investment trust (REIT) universe during the modern REIT era (early 1990s through the present). The growth and consolidation of the industry, changes in property type focus, increases in institutional ownership, and the growth of operating partnership usage are documented. Additionally, trends in cash flow, variation in dividend payouts, increases in leverage, differences in accounting performance measures (ROA, ROE, Tobin's Q), a rise in expense ratios, and dissimilarities in profit margins are given by property type. A list of all firms who meet publicly traded REIT qualifications is also provided.

The real estate investment trust (REIT) corporate structure is essentially nothing more than a tax status as defined by the Internal Revenue Code.1 Qualified REITs are able to avoid taxation at the corporate level provided they meet certain regulatory requirements regarding their organization, operation, and distribution of income.2 However, since their advent by the 86th U.S. Congress in 1960, REIT regulations have undergone numerous changes that have dramatically affected the size, nature, and composition of the industry.3

Among the most notable changes are the Tax Reform Act of 1986 (TRA), the IRS private letter ruling on the Taubman Centers Inc. initial public offering (IPO) in 1992, the Omnibus Budget and Reconciliation Act of 1993 (OBRA), and the REIT Modernization Act of 1999 (RMA) (Chan, Erickson, and Wang, 2003; and Geltner, Miller, Clayton, and Eichholtz, 2007). TRA laid the groundwork for the tremendous industry growth that soon followed by allowing for REIT vertical integration and internal management, in addition to eliminating the favorable tax treatment of real estate limited partnerships. The innovative Taubman IPO introduced the umbrella partnership (UPREIT) structure and OBRA relaxed the five-or-fewer ownership rule which, in combination, spurred a remarkable influx of both property and capital into the REIT industry.4 RMA reduced the required income distribution from 95% to 90% of taxable income and enabled REITs to set up wholly owned taxable REIT subsidiaries through which they could provide additional services to their tenants.5 With all these changes, REITs transitioned from passive real estate portfolios to actively managed corporations with increased access to investor capital. At the same time, the total equity REIT market capitalization soared from just $26 billion in 1993 to over $400 billion in 2006. This period (early 1990s up through the present) has come to be known as the modern REIT era.6

Regulatory changes and the sheer growth of the industry render REITs an interesting forum for academic inquiry. The unique features of REITs provide, at times, an appropriate experimental laboratory from which to make inferences about corporate finance in general. Studies that utilize REIT samples appear in some of the most highly regarded publication outlets in the general finance, accounting, and economics literature, and explore various topics of general interest. For example, Allen and Sirmans (1987) look at mergers and acquisitions, Howe and Shilling (1988) study capital structure and security offerings, Jaffe (1991) analyzes taxes and capital structure, Ling and Ryngaert (1997) examine institutional involvement and IPOs, Brown (2000) studies liquidity, Kallberg, Liu, and Trzcinka (2000) analyze investment managers, Gentry, Kemsley, and Mayer (2003) examine dividends, Baik, Billings, and Morton (2008) look at disclosure, and Hartzell, Kallberg, and Liu (2008) examine corporate governance and IPOs.7

In addition to lending insight at the general level, REITs are interesting in and of themselves. The ownership of large real estate assets has historically been inaccessible to most investors and highly illiquid for those with sufficient resources to make such an investment. Consequently, real estate equity securitization represents a dramatic change in the traditional ownership structure of this historical store of wealth. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed


An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.