A company that invests in real estate and whose shares trade on a public exchange. A real estate operating company is similar to a real estate investment trust , except that an REOC will reinvest its earnings into the business, rather than distributing them to unit holders like REITs do. Also, REOCs are more flexible than REITs in terms of what types of real estate investments they can makes.
|||Because real estate operating companies reinvest earnings rather than distribute dividends to unit holders, they do not get the same benefits of lower corporate taxation that are a common characteristic of REITs.
Investors in an REOC seek capital gains rather than passive cash flows. When analyzing a potential REOC investment, an investor should look for relatively high return on investment capital, return on equity and return on assets, as well as a respectable valuation. These are all measures of how well a company has been using its invested capital, equity and assets to generate profits. The higher these returns, the more likely it is that the company will continue to be profitable.