REITs » Corporate Finance http://reits.a-z-finance.net Learn about Malaysia, Singapore and Worldwide Real Estate Investment Trusts (REITs),its purpose as an investment vehicle for using in both personal and corporate finance strategy Wed, 18 Nov 2009 05:33:46 +0000 en hourly 1 http://wordpress.org/?v=3.0 Benefits to a Company that Disposes its Properties to a REIT http://reits.a-z-finance.net/benefits-to-the-company-that-dispose-of-properties-to-the-reit/ http://reits.a-z-finance.net/benefits-to-the-company-that-dispose-of-properties-to-the-reit/#comments Wed, 05 Sep 2007 11:27:56 +0000 slang http://reits.a-z-finance.net/?p=35 It is important that companies consider REITs to be a part of its financing strategy given the many benefits they can offer. A Real Estate Investment Trust, or REIT, is a company that owns, and in most cases, operates income-producing real estate.

By selling off to a REIT or using its properties to establish a newly set up REIT, a company may gain one or more of the following benefits:

  1. Freeing-up capital to be invested into the growth of your company, basically you are converting your fixed assets into liquid assets,
  2. As you convert the fixed assets into cash, the liquidity of your company increases,
  3. Improving your company’s ROA% if the disposed properties/real estate are a significant proportion of your company’s fixed assets. With the disposal of this big chunk of fixed assets, overall fixed assets turnover rate could increase substantially, hence giving you a higher than original ROA%.
  4. Rental incomes from those properties are replaced by fee-based incomes from the REIT
  5. Negates the need to raise potentially more expensive capital in the marketplace to finance expansion etc.,
  6. Realizing some capital gains from the disposal of the property or real estate,
  7. Realizing a lump sum cash amount immediately to invest in other alternatives.
  8. Able to reward shareholders with a dividend payout if alternative investments are not needed.

[Refer to earlier article on the comments on country comparison between Singapore & Malaysia pertaining to the frequency of Initial Public Listing of REITS ]

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