REITsneed capital , just like any other corporation . The fashion a publicly trade in REIT ( real estate investment corporate trust ) does that is by IPO – initial public offering . This is just like selling any otherstockto the populace , who are endue in the corporation ’s income - generating real estate . The people who bribe IPOs are invest in real estate which is managed like a stock certificate portfolio . These external funds that raise capital start the REIT to purchase real estate of the realm , acquire and manage it , for the use of generate net income . REIT generate income , and 90 pct of that nonexempt income must be distributed to the shareholders on a regular basis . REITs make money from the properties they purchase by renting , lease or selling them . The shareholders choose a board of directors , who are the ones responsible for for pick out the investments and for take a squad to do them on a day-after-day base .
The way REIT profits are usually measured is called FFO , which fend for funds from operations . According to the National Association of Real Estate Investment Trusts ( NAREIT ) , FFO is delineate as a figuring of final income from economic rent and/or sales of properties after deduct the price of administration and funding . The NAREIT calculation of last income are based on generally accepted accounting principles – mostly accept account rationale . The job is that in generally accepted accounting principles calculations , the depreciation of plus is assumed to be a predictable given , which actually skews the true measure of a REITs revenue in a negative fashion because real the three estates , which is what REITs cover in , keep its value or even increases over time . For this reason , FFO does not include depreciation in the final income .
Investors who want an precise calculation of a REITs FFO , must look to other reservoir , such as a company ’s quarterly paper and other supplemental information . The pattern for measuring a REITs operate Johnny Cash flow based on net income calculated according to generally accepted accounting principles is not always precise . The true beat of a REITs FFO should also take into account factors such as reparation , maintenance and other costs .
