What is a Paired-Share REIT

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REITs are supposed to be in the real estate business, not the operations or management business. But yet, depending on the type of commercial real estate type involved, a lot of operations management may be involved -- especially for hotels.

So many REITs solved the problem by essentially being two companies in one -- the REIT and a C corporation. Two companies are owned by the same shareholders and trade together on the stock exchange as one unit. One company owns the real estate, the other company performs some sort of service, and they're stapled together.

The C corporation must by taxes as required of any C corporation.

This arrangement was outlawed back in 1982, but four REITs were grandfathered. That is, allowed to keep their shared-pair REIT status.

The 4 Shared-Pair REITs are:

Starwood W Lodging Trust (because it bought out California Jockey Club/Pay Meadows Operating Co in July 1997)

Patriot American Hospitality, Inc.

First Union Real Estate Investments

Meditrust Corp (because it bought out Santa Anita Realty Enterprises Inc in November 1997)

These four companies did have their activities restricted, but since then the REIT Modernization Act of 1999 has loosened some of the restrictions and allowed REITs to own Taxable REIT Subsidiaries.

Next: What is a Taxable REIT Subsidiary -- one more way to structure REITs financially.

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