What is the difference between REITs and business trust?

When you invest in REITs, you are basically owning a portion of the properties right? What about busniess trust? For example, netlink trust? You own the fibre laid by them?

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Brian

15 Nov 2019

Hi Anon,

A REIT is different from a Business Trust as it can only own and operate real-estate assets whereas for Business Trusts, there is no such restriction on the type of assets. One such example would be the Arcadia Golf Trust.

Furthermore, I think that the management differences are different. For a REIT, the management of the asset and the ownership of the asset can be different while the entity must be the same in both cases under a Business Trust. This results in difference in the governance structure between the 2 as the trustee-manager of a Business Trust it more difficult to be replaced. I think that there are also differences in the board of directors where Business Trusts must have independent board of directors while only a third of the board must be independent in REITs.

One key different is also the gearing ratio as REITs are limited to 35% (or 45%/60%) gearing while there is no limit for Business Trusts.

You can consult this article as well! https://sg.finance.yahoo.com/news/difference-be...

(https://solutions.kristal.ai/seedlypost)

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Zann Chua

29 Mar 2019

Hello!

The main difference between REITs and a Business trust is that REITs needs to be involved in real estate while such a restriction does not apply to Business Trusts.

Here are some other differences between REITs and a Business Trust

1) Legal structure

For the case of business trusts, it is the same entity which owns and manages the assets on behalf of the unitholders of the busniess trust. While a REIT would need to hold the assets and a separate manager to manage the assets for unitholders. The trustee for a REIT must be a licensed entity approved by the authorities.

2) Differences in leverage

A REIT is only allowed a gearing ratio of up to 35%, but it will be able to boost its gearing ratio to 60% should it be able to obtain a credit rating from rating agencies. While a business trust do not need to subject themselves to any borrowing limit.

3) Level of distributions

A business trust does not need to distribute any of its income while a REIT must pay out 90% of its “distributable income” under the Income Tax Act.

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