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A. What is a REIT?
   
 
   
  According to the definition of NAREIT (the National association of REITs), a REIT is a company that owns, and in most cases, manages income-producing real estate such as apartments, shopping centers, office buildings, hotels and warehouses. Some of them also engage in real estate finance. Most shares of REITs are freely traded on major stock markets.

To qualify as a REIT, a company should pay dividends worth of at least 90 percent of its taxable profits to its shareholders annually. A REIT is allowed to deduct the dividends from its taxable profits, so that most REITs are exempted from corporate taxes by paying dividends of all taxable profits to shareholders. Shareholders pay taxes on capital gains or dividends. However, unlike joint ventures, a REIT cannot pass over any tax losses to its investors.
B. Advantages of Investing in REITs
  REITs are total return investments. They typically provide high dividends plus the potential for moderate, long-term capital appreciation. Long-term total returns of REIT stocks are likely to be somewhat less than the returns of higher risk high-growth stocks and somewhat more than the returns of lower risk bonds. Because most REITs also have a small-to-medium equity market capitalization, their returns should be comparable to other small to mid-sized companies.

There is a relatively low correlation between listed REIT stock returns and the returns of other market sectors. Thus, including listed REITs in your investment program helps build a diversified portfolio.

   
  REITs offer investors:
 

Current, stable dividend income
High dividend yields
Dividend growth that has consistently exceeded the rate of consumer price inflation
Liquidity: share of publicly traded REITs are readily converted into cash because they are traded on the major stock exchanges
Professional management: REIT managers are skilled, experienced real estate professionals
Portfolio diversification, which reduces risk
Oversight: Independent directors of the REIT, independent analysts, independent auditors, and the business and financial media monitor a public REIT's financial reporting on a regular basis. This scrutiny provides an investor a measure of protection and more than one barometer of the REIT's financial condition
C. Prospect of REITs in Korea
  Since REITs provide highly liquid investment instrument for institutional investors, it is anticipated that they will continue to grow through an inflow of investment funds from investors. REITs will also continuously pursue M & A to achieve economies of scale in real estate management. In addition, as only large-sized REITs with more than 1 Billion dollar capital are expected to successfully raise funds in markets, differentiation among REITs will continue; however, it is generally expected that an inflow of real estate investment funds toward REITs will be maintained.
Though REITs market has grown rapidly in Korea, it is still immature comparing with the size of other capital sources in the stock market. Nevertheless, it is highly predicted that REITs will achieve considerable growth in the future.
 
D. Dividends & Diversification
  TBecause REITs must pay out almost all of their taxable income to shareholders, investors can look to REITs for reliable and significant dividends (typically four times higher than those of other stocks, on average).
Analysis of historical data concluded that the relatively low correlation between REITs and other stocks and bonds makes them a powerful diversification tool.
Any investor can build greater long-term wealth by combining homeownership and REIT stocks as part of a diversified investment portfolio.
   
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