The introduction of German REITs- Market structure and potential

Real Estate Investment Trusts (REITs) are a bridge between two worlds, thecapital markets at one end and the real estate sector on the other, leading toa unique risk/return profile. They bear benefits neither of which can realizestanding alone, resembling a hybrid between real estate and equity.REITs invest directly in property and pass on almost all earnings to theirshareholders as dividends. By distributing most of their profits, REITs get specialtax treatment and avoid corporate income tax. Because of that REITs haveproven very attractive to investors: Their returns have beaten most major equitybenchmarks over three decades, with lower volatility, while offeringpredictable cash flows and high dividend yields. Further, they have a low correlationwith other asset classes, aiding portfolio diversification.In Germany real estate has been the most popular investment theme of thepast three years, despite its significant underperformance compared to Europeanpeers, with open-end funds receiving almost all money inflows. The listedsector, however, is insignificant, both in terms of size and liquidity, and isin desperate need of a catalyst. The introduction of a G-REIT structure couldpotentially be the long-awaited saviour that could transfer the importance ofGerman real estate into the listed sector.The REIT discussion in Germany has reached a serious stage, as almost all ofthe involved parties seemingly agreed about the usefulness of a REIT structure.The purpose of this book is to highlight the case for REITs in Germany,to analyse the progress of REITs in countries that have already installed a REITregime and to look at what the introduction of a G-REIT would ultimatelymean for the German real estate market.