REITs
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                        REITs
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                      Requirements
                         Ownership
          – 5 or fewer entities may not own 50% or more of the 
            outstanding shares (the “5/50 Test”)
          – No one shareholder owns more than 9.9% (pension funds 
            excluded)
          – REIT shares must be transferable and held by at least 100 
            persons
          – Must be managed by a board of directors or trustees
          – Must be incorporated in one of the 50 states or DC as a 
            taxable entity
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                         Requirements
                           Management
         – REIT managers must be passive
            • REIT trustees, directors or employees may not actively engage 
              in managing or operating REIT properties (includes providing 
              service and collecting rents from tenants).
            • Managers may set policy: rental terms, choose tenants, sign 
              leases, make decisions about properties.
         – REITs allowed to own 100% of a Taxable REIT Subsidiary (TRS).
            • REIT Modernization Act of 1999 (effective 2001)
            • TRS can provide services to REIT tenants and others (previously, this 
              was not allowed).  
            • Debt and rental payments from TRS to REIT are limited to ensure 
              that the TRS actually pays income taxes.
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                      Requirements
                          Assets
          – 75% of assets must be real estate, cash, and govt. securities
             • other REIT shares are considered real estate assets, but 
               not more than 20% of its assets can be stocks in taxable 
               REIT subsidiaries
          – not more than 5% of assets can be stock in non-real estate 
            corporations
          – may not have more than 10% of voting securities of any 
            corporation other than another REIT, Taxable REIT 
            Subsidiary (TRS) or subsidiary whose assets and income 
            are owned by the REIT for federal income tax purposes
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