Question

real estate investment trust (REIT) competitive interaction

Answer 1

Historical Backdrop:

In 1960, the U.S. Congress created Real Estate Investment Trusts (REITs) in order to promote large-scale investments and to provide an opportunity to possess real estate through the liquidity of security notes. Previously, commercial real estate investments were only accessible to institutions and wealthy individuals being able to afford direct real estate investments. In July 2008, the REIT Investment and Diversification Act became law and thus it allows REITs to buy and sell assets more efficiently and further increases the size of taxable REIT subsidiaries.

Analyzing REIT Industry:

In 2011, the REIT industry represented $54.3 billion in revenue and a profit of $7.8 billion. The annual growth between 2006 and 2011 only averaged 4,4% including a 2.1% jump in 2011. There are certain points for a company to qualify as a REIT in the U.S i.e. it must comply with certain ground rules specified in the Internal Revenue Code. These include:

1. Investing at least 75 percent of total assets in real estate
2. Deriving at least 75 percent of gross income as rents from real property or interest from mortgages on real property.
3. Distributing annually at least 90 percent of taxable income to shareholders in the form of dividends.

Competitive Environment:

The industry environment infers a high competitive battle among Hotel & Motel REITs. The success of one company over another lies in the brand management success; Hotel & Motel REITs’ strategy is to pressure hotel management to optimize profit from operations and minimize operational costs. Its features include strategic targets, the basis of competitive advantage, product line, marketing emphasis, and meaningful continuous strategy.

Conclusion:

To conclude, one can say that REITs competitive environment makes it more successful and the most important factor which brings success for the company is the proper functioning and meaningful management.