I have mentioned in my earlier article on Sale and Leaseback strategy for cash strapped companies, companies that are underutilizing their fixed assets particularly real estate i.e. having low ROA% or those who wants to realize cash funds from fixed assets for other investment purposes. Similarly, we can also use REIT to do the same objectives.
In this case, the company who has viable real estates will then able to sell off to REIT.
A Real Estate Investment Trust, or REIT, is a company that owns, and in most cases, operates income-producing real estate.
By selling off to the REIT, the company has the following advantages:

• Freeing-up capital to be invested into the growth of your company, basically you are converting your fixed asset into liquid asset,

• Because of freeing the fixed assets into cash, it therefore improves the liquidity of the company,

• Making company’s ROA % higher as most probably the property or real estate will bear a significant proportion of the fixed assets. With the disposal of this big chunk of fixed assets, presumably, overall fixed assets turnover rate will be much higher hence giving a higher than original ROA%.

• Negates the need to raise potentially more expensive capital in the marketplace to finance expansion etc.,
• Realizing some capital gains from the disposal of the property or real estate,
• Realizing a lump sum cash amount immediately to invest in other alternatives.

If you found this post useful, keep updated with future posts by subscribing to FMAccounting (for free) through RSS or email.

Related Entries

• Sale and Leaseback
• YTL Group Selling Properties To REIT For RM1.2bil
• AmInvestment Launched Property Fund To Invest In Properties & REIT
• DuPont System: Overview & ROA & ROE
• Amanah Raya to enter REIT market