Transparency is an important element in the REIT story and can be thought of in two ways.
REITs provide tax transparency. REITs are required by law to distribute at least 90 percent of their taxable income to maintain REIT status, and most distribute 100 percent or more. REITs have no incentive, therefore, to direct management time and resources to mitigation of core tax consequences. As a result, the returns investors receive are solely the returns on the real estate—and not tied to any tax minimization activities. Instead, REITs are able to focus on the management and development of their real estate assets.
REITs also provide market transparency. An important REIT investment characteristic is that the assets are identified and easily valued independently. Investors and analysts can see the buildings, drive by them and often walk in them. They are real and tangible assets.
Stock exchange-listed REITs are held to the same standards and requirements as other publicly traded companies. Listed REIT reporting is governed by the Securities & Exchange Commission, Generally Accepted Accounting Principles, and the various stock exchanges on which their shares trade. Listed Equity REITs also report Funds from Operations (FFO) as a supplemental earnings measure in their financial statements. FFO is often cited by academics as the most reliable metric by which to value property owning real estate companies.