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REITs successfully operate in 20 countries around the globe. They invest in all types of real estate and generate income primarily from the rents of the respective properties. Due to the usually long-term contracts, their income streams are very stable. A company which meets certain criteria and therefore classifies as a REIT is not subject to taxes. These are instead imposed on the level of the shareholders. REITs are also characterized by high dividend payments (80-90% of operating income). The asset class of REITs is therefore of particular interest to investors looking for companies with stable cash flows and simultaneously moderate growth opportunities in the long term.

In Germany REITs were introduced in 2007. The legal framework relates, in particular, to the acquisition, management and sale of commercially used property. These include industrial, office, retail and logistics premises. The REIT‘s portfolio may include German and foreign properties with the exception of residential properties built before January 1, 2007. In order to obtain a REIT status and to maintain this over the long term the following conditions have to be met:

  • REITs must be long-term owners:

in general a company will qualify as a REIT, if it generates its earnings from letting and leasing property, and from property buying, selling and management. However, to distinguish REITs from pure property traders, they may only turn over at most 50% of their portfolio within 5 years

  • Payout ratio of at least 90%:

This rule is geared to international REITs, for which a payout ratio of 80%-90% is one of the most important criteria for the REIT status recognition

  • 75% restriction:

a REIT's assets must consist of at least 75% of real property. Similarly, at least 75% of the gross income must result from rental, leasing or disposal gains of portfolio assets

  • Equity ratio at least 45%:

in order to provide a solid balance sheet, the real estate assets of a REIT have to be at least 45% equity-backed

  • Mandatory listing:

REITs are subject to review by the capital market. Therefore the company has to be listed on the regulated market of the German stock exchange

  • Minimum free float:

No single shareholder may hold directly 10% or more of the shares of a REIT. At least 15% of the shares must be in free float. At the time of listing even a free float rate of 25% is required