Real Estate Operating Companies (REOCs) vs. Real Estate Investment Trusts (REITs)

Nugget of the week

Goal: Real estate operating companies (REOCs) maximize capital gains for shareholders. Real estate investment trusts (REITs) maximize cash distributions to shareholders.

Strategy: REOCs actively buy, develop, manage and sell properties. eREITs passively own properties to generate rental income.

Capital allocation: REOCs reinvest profits for growth. REITs must distribute profits to shareholders.

Taxation: REOCs are double-taxed (at corporate and shareholder level) like traditional corporations. REITs are exempt from corporate taxation.

Business: REOCs are unrestricted in their business activities. REITs are limited to activities related to real estate.

Ownership: REOCs’ shareholder base is unregulated. REITs must have a minimum number of shareholders.