Frequently Asked Questions

What is a REIT?

REITs, or Real Estate Investment Trusts, are modeled after mutual funds and are essentially required to distribute all of their taxable income currently as taxable dividends. REITs give all Americans the chance to buy stock in companies owning or financing income-producing real estate (like a shopping center or office building) that would otherwise likely be financially out of reach. Today, an estimated 80 million Americans own REITs through their retirement savings and other investment funds.

Why were REITs created?

Congress created REITs in 1960 to give all Americans the chance to invest in real estate beyond just their homes. In fact, the primary intention of Congress in authorizing the use of REITs was to provide a means “whereby small investors can secure advantages normally available only to those with larger resources,” in connection with real estate investment. Congress specifically noted that these beneficial characteristics included “greater diversification of investment,” “expert investment counsel” and the means of “collectively financing projects which the investors could not undertake singly.”6

Today, an estimated 80 million Americans own REITs through their retirement savings and other investment funds.

How many REITs are doing business in Hawaii?

As of December 31, 2016, there were 32 public REITs7 owning approximately 85 properties in Hawaii. These properties are currently valued at almost $13 billion.8 Included in these companies is Pacific Office Properties Trust, Inc., which is headquartered in Honolulu and led by chairman of the board and local businessman and University of Hawaii alumnus Jay H. Shidler.

In 2017, there were two other companies operating in Hawaii that became REITs: Alexander & Baldwin, Hawaii’s premier real estate company for the past 150 years; and Park Hotels and Resorts, which owns the Hilton Hawaiian Village Waikiki Beach Resort and the Hilton Waikoloa Village on the Island of Hawaii.

Wet’n’Wild Hawaii is getting $3 million in improvements and employs 350 Hawaii residents.

Wet’n’Wild Hawaii invested $3 million in improvements and employs 350 Hawaii residents.


What are the benefits of REITs in Hawaii?

REITs invest billions in Hawaii, generating tax revenue, collectively supporting over 10,000 employees in Hawaii with combined incomes of over $520 million, promoting economic stability and supporting local organizations and charities with donations and their time. Specifically, Taubman Centers Inc. committed $450 million to the redevelopment of International Market Place (IMP) in Waikiki. Since its completion, estimates show IMP generating more than $10 million in annual Hawaii general excise taxes and $4 million in annual property tax. General Growth Properties invested $1 billion for expansion of Ala Moana Center and nearby residences. Economic activity during construction includes 11,600 jobs and more than $146 million in state tax revenue. CNL Lifestyle Properties, Inc. invested more than $3 million in improvements at Wet‘n’Wild Hawaii and currently employs more than 350 residents. Further, as investments, REITs give everyday investors the ability to own income-producing real estate; they offer the opportunity for competitive returns,9 asset diversification, and strong dividends.10

How are REITs and their shareholders taxed in Hawaii?

REITs are also required to distribute all of their income to shareholders as taxable dividends. If a company doing business in Hawaii qualifies as a REIT, the REIT generally pays federal and Hawaii corporate income tax to the extent it does not distribute its income. REIT shareholders in Hawaii pay Hawaii income tax on the dividends they receive even from REITs that don’t do business in Hawaii. Of course, REITs and their tenants pay general excise taxes (GET) and property taxes like other businesses.

Do Hawaii residents benefit from investing in REITs?

Data shows that more than 9,300 individual investors received a total of nearly $30 million in distributions from non-listed REITs. Hawaii-based financial advisors also are active REIT investors on behalf of their clients, holding approximately $32 million in REIT stocks, and about $60 million in several REIT-dedicated mutual funds. Adding up all the ways of investing in REITs suggests that Hawaii residents own a total of at least $2.5 billion in real estate equity directly through REITs or through mutual funds and exchange-traded funds.

Do REITs get involved in the community?

Absolutely. Because REITs are long-term investors, they become part of our local community. This type of investment has positive multiplier effects. More capital leads to better infrastructure and retail offerings, which attracts more visitors, which generates revenue for the state, which increases local jobs – in fact, over 10,000 jobs. REITs also support local non-profit organizations, through both charitable and in-kind donations.

As investors in the local community, REITs have helped grow and improve communities; here are some examples:

  • Beginning in 2007, American Assets Trust partnered with Hawaii-based Outrigger Enterprises to revitalize and redevelop Waikiki Beach Walk® from a place where many would not choose to venture into an “energetic and inviting, eclectic and exciting…leisure destination to play and to stay.”11
  • Hawaii’s first urgent care center for orthopedic injuries was opened by Drs. Gary Blum and Darryl Kan in the Hale Pawaa building in Honolulu, a building owned by Healthcare Realty Trust. The Hale Pawaa building also boasts a two-year old 7,000 square foot medical imaging facility operated by Hawaii Advanced Imaging Institute, the leading outpatient medical imaging center in the state, and the only outpatient facility in the state that offers PET-CT (Positron Emission Topography/Computed Tomography) services. The nine-story Hale Pawaa provides the local medical community with state-of-the-art facilities in a convenient location within a mile of the state’s premier hospitals and clinics, including the Kapiolani Medical Center for Women & Children, Kaiser Permanente’s Honolulu Clinic, Straub Clinic & Hospital and The Queen’s Medical Center.
  • Douglas Emmett, Inc., which has been investing in Hawaii for over a decade, currently owns over 1,500 apartment units in Honolulu, and is expanding workforce housing options at a number of places, including Hawaii’s Moanalua Hillside Apartments, with the addition of 504 units.
  • Wet’n’Wild Hawaii, owned by CNL Lifestyle Properties, Inc., is one of Oahu’s top 10 most visited family attractions and was recently voted Best of Honolulu Magazine’s “Best Family Attraction.” CNL Lifestyle Properties, Inc. has invested approximately $3 million since 2009 in refurbishment of pools and slides, new pumps and equipment for rides, new filtration systems for the pools, new restaurant equipment, and parking lot refurbishment. also included Wet’n’Wild Hawaii in its list of the top 10 amusement and waterparks in the U.S. Wet’n’Wild Hawaii currently employs more than 350 residents.
  • Washington Prime Group’s Pearlridge Center, the second largest mall in Hawaii, features over 1.1 million square feet of national retailers, diverse specialty shops, retail merchandising units and kiosks, and a movie theater. The mall draws local residents from central and southwestern Oahu and is not dependent on tourists. Along with the American Institute of Architects, Honolulu Chapter, Pearlridge Centers hosts the annual Canstruction® competition. Over the past 11 years, Canstruction raised 351,130 pounds of food to help feed the hungry in Hawaii, providing a total of 276,480 meals for the Hawaii Food Bank.
  • Taubman Centers, Inc.’s International Market Place (IMP) development recently opened and is estimated to generate over $10 million annually in general excise tax (from landlord rents and by tenants from retail sales of merchandise), over $4 million annually in property taxes, and employment of over 1,000 construction jobs and 2,500 permanent jobs (which will generate individual income tax revenues). It is expected that IMP will provide a renewed and sustainable income source of revenue for The Queen’s Medical Center. “We are deeply committed to Hawaii and believe the renewed IMP will be exceedingly positive for both [its owner] The Queen’s Health Systems and the local community. In its new form, the center will continue to serve as a must-see attraction for the people of Hawaii and its visitors,” said Stephen J. Kieras, senior vice president of development for Taubman.
  • At Ala Moana Center, General Growth Properties invested almost $1 billion in capital to construct additional retail square footage and luxury residences, along with local partners Hawaiian Dredging Company, The MacNaughton Group, The Kobayashi Group, and Blacksand Capital. During the construction period, estimated economic activity included 11,600 full- and part-time jobs and over $146 million of state revenue. After construction, the shopping center investment alone will produce an incremental $33 million of state revenue and 3,000 jobs annually.


Aren’t REITs used to flip property to make money for investors?

No, quite the opposite. REITs are long-term investors and would forfeit all of their profits to the IRS if they simply developed and then “flipped” properties. As a result of REITs’ long-term commitment to the local commercial real estate market, they help stabilize commercial real estate prices and help reduce speculation in the state’s real estate sector.

As of December 31, 2016, there were 32 public REITs owning 85 properties in Hawaii.

Where are REITs located?

Along with properties in Hawaii, REITs also own real estate in the other 49 states and the District of Columbia12 and in countries around the world. In fact, 31 other countries around the globe currently have REITs,13 and even more countries are considering it because of the great success REITs have had in the U.S. REITs help Americans invest in real estate and help revitalize communities. You can look at REIT-owned properties here. Through investments in REITs, investors in Hawaii can own a piece of a shopping center in Illinois, student housing in Kentucky, or apartments in California.

How does a company qualify as a REIT?

To qualify as a REIT, a company must comply with specific rules made by Congress and regulations set forth under the Internal Revenue Code.14

Who invests in REITs?

Anyone can. It is estimated that 80 million Americans are invested in REITs either directly or through their 401(k), pension plans, or other investments. Many teachers, firefighters, public employees, and others are invested in REITs through their pension plans or other investment funds. For example, Bank of Hawaii’s investment services group owns millions of dollars’ worth of shares of REITs that earn income both in and out of Hawaii. Thousands of Hawaii residents directly or indirectly (through pension funds and other investments) own approximately $1 billion worth of REIT shares. These shares are subject to income taxes in Hawaii of approximately $8.8 million.

Taubman Centers, Inc.’s International Market Place will create over 1,000 construction jobs and 2,500 permanent jobs.

Taubman Centers, Inc.’s International Market Place created over 1,000 construction jobs and 2,500 permanent jobs.


What types of properties do REITs own, manage and finance?

No matter where you live or what your walk of life, REITs can have an impact on your life. Whether it is shopping, working, or maybe that apartment you rent, REITs help make it happen. REITs own, manage and make loans secured by apartments, health care and life science facilities, hotels, office buildings, shopping centers, warehouses, and more. Even that cell phone you use every day is made possible in part by cell phone tower REITs.

How many REITs are there?

The Internal Revenue Service reports that in 2011 there were about 1,900 U.S. REITs.15 It has been estimated that all public REITs owned nearly $1.8 trillion in gross assets. As of October 30, 2015, there were 224 stock exchange listed REITs with a combined equity market capitalization of almost $930 billion.16

Are there different kinds of REITs?

Yes. There are two primary types of REITs: Equity REITs (that typically own and rent out real estate) and Mortgage REITs (that typically make loans secured by real property). Some REITs are publicly traded, some are sold to the public directly but not traded on stock exchanges, and others are private. To learn more about the different kinds of REITs, click here.

Because of the success of REITs in the U.S., 31 other countries,17 including Japan, Singapore, France, and the U.K., have created REIT structures using the U.S. model as their guide. More and more countries are considering adding REITs.

What is the difference between REITs, non-REIT corporations and limited partnerships?

A REIT is just a corporation (or business trust taxed as a corporation) that elects to be subject to the REIT rules – to be a widely-held, long term investor in mainly income-producing real estate and to distribute all of its taxable income so tax is paid at the shareholder level. REITs distribute income to shareholders, but they cannot pass through losses to investors. Partnerships are flow-through entities that pass through both income and losses to investors. Most real estate partnerships are organized as “limited partnerships,” with a general partner who has unlimited liability, and one or more limited partners with limited liability.

The following chart compares REITs, non-REIT corporations, and limited partnerships.

Important Differences: REITs vs. Limited Partnerships and Non-REIT Corporations

Question REIT Limited Partnership Non-REIT Corporation
1) Are shares or ownership interests transferable? Yes, even if REIT shares are not publicly traded. Generally no, but a small number of partnerships are publicly traded on a stock exchange. If private, not necessarily. If stock-exchange traded, yes.
2) Is a minimum investment required? Not for publicly traded REITs. Generally yes unless publicly traded. Typically yes, if private. No if publicly traded.
3) Can the company be “closely held”? No, there must be at least 100 shareholders, and five or fewer individuals cannot own more than 50% of the company’s value. Yes. Yes.
4) Can the company develop condominiums or other properties for sale? No, they are subject to 100% of tax on the gain from property held primarily for sale. Yes. Yes.
5) Can the company retain its earnings for future investments? No, REITs are required by law to distribute 90% of their taxable income, but market forces generally require public REITs to distribute all of their taxable income. Yes. Yes.
6) Can the company pass-through losses (tax deductions) to investors? No. Yes. Yes.
7) Can investors easily transfer shares or ownership interests? Yes, REIT shares must be transferable. Typically not, except for the limited number of publicly traded partnerships. Typically not if private. Yes if public.
8) Can a majority of investors control the company? Yes, investors elect directors, and, if exchange-traded, relevant exchange rules may require some directors to meet an “independence” test. No, general partner controls and typically cannot be controlled by the limited partners. Yes, investors elect directors, and, if exchange-traded, relevant exchange rules may require some directors to meet an “independence” test.
9) How does the company report taxable income to shareholders/investors? Form 1099-DIV Schedule K-1 Form 1099-DIV
10) Where does a shareholder/investor pay state tax on distributions or allocations of income? In the shareholder’s state of residence. Generally, in the states in which the partnership is doing business. Most states with income taxes require partnership withholding. Hawaii does not require partnership withholding. In the shareholder’s state of residence.
11) Is the company subject to state income tax on its taxable income? Generally, yes, if the state imposes a corporate income tax. However, all states with a corporate income tax (except for New Hampshire) conform to federal law and allow a REIT to deduct its mandatory distributions to shareholders in calculating its tax liability. Thus, to the extent the REIT distributes all of its income to shareholders, all tax will be paid at the shareholder level. This means that Hawaii residents who own REIT shares pay Hawaii taxes on the dividends they receive even if the REIT owns no Hawaii assets. No, in general, states do not impose income tax on partnerships. Hawaii does not impose income tax on partnerships. Yes, if the state imposes a corporate income tax. Hawaii imposes a corporate income tax. However, Hawaii collects little in the way of corporate taxes because of careful tax planning by corporations. For example, interest payments on corporate debt reduce the amount of income subject to a corporate-level tax.

How many REITs operate in Hawaii and how many are based in Hawaii?

Based on SEC filings of public REITs, approximately 32 REITs owned rental real property in Hawaii as of December 31, 2016.18 One of those REITs is Pacific Office Properties Trust, headquartered in Honolulu. Alexander & Baldwin, another locally-based Hawaii company, converted to a REIT in 2017.

Do Hawaii residents own REITs?

In 2014, there were more than 9,300 shareholders in public non-listed REITs in Hawaii. Thousands of Hawaii investors also own REITs through locally-managed portfolios, directly, in dedicated REIT mutual funds, and in exchange-traded funds, and not mutually-exclusively. Public disclosures reveal that it is commonplace for Hawaii public officials, both elected and appointed, to hold REIT investments in their personal or managed portfolios. Several individuals in Hawaii are limited partners in umbrella partnership REITs (UPREITs), majority REIT-owned partnerships. Hawaii organizations that manage retirement savings plans with REIT investments include, but may not be limited to, Hawaii Pacific Health, Hawaiian Airlines, The Queen’s Health System, University of Hawaii Foundation, Hawai‘i Community Foundation, Office of Hawaiian Affairs, City & County of Honolulu, and Kamehameha Schools. From investment industry data, as well as from IRS data, not taking into account the fact that Hawaii, with a somewhat older population on average than the U.S. as a whole, is likely to have higher REIT ownership on average because of investor preferences, at least $2.5 billion in real estate equity is held by Hawaii residents through REITs, directly or indirectly. The study concludes that Hawaii residents earn an estimated $105 million annually in REIT dividends, on which at least $8.8 million in state income taxes is owed.

What is a “captive REIT” and how is it taxed by Hawaii?

A number of years ago, reports surfaced regarding the formation by widely-held non-REIT corporations of virtually 100%-owned REITs as a way to reduce state taxes inappropriately. In certain cases, this structure was used to allow a non-REIT corporation a rental deduction for essentially “paying rent to itself”,19 while in others, this structure was used to take advantage of a lack of conformity between state and federal tax law which would allow a REIT claim a “dividends paid deduction” for dividends paid to its corporate owner, which then would claim a “dividends received deduction” (DRD) for the dividend from the REIT.20

In TIR 98-6 (July 8, 1998), the Hawaii Department of Taxation clearly shut down the latter structure, noting that a corporate owner of a REIT may not claim a DRD with respect to a REIT dividend.

Thereafter, the Multistate Tax Commission (MTC), an organization of state governments (including Hawaii) that recommends uniform statutes, released two model captive REIT statutes: one in June 2008, that essentially would require a “captive REIT” to add back its dividends paid deduction, and one in 2011, that would disallow deductions like rent and interest for payments made by affiliates to a “captive REIT.” In general, a captive REIT is defined as a private REIT more than 50% held by a taxable, non-REIT, non-“foreign REIT-like” corporation (called “qualified foreign entities”). A number of states, including Arkansas, Colorado, Illinois, Indiana, Kentucky, Louisiana, Mississippi, Maryland, North Carolina, North Dakota, Oklahoma, Rhode Island, Utah, Virginia, and West Virginia, have adopted some version of these MTC model statutes.

In 2015, the Hawaii Department of Taxation submitted testimony to the Hawaii Legislature in which it suggested that to the extent “the Legislature believes that some limitation should be applied to prevent “captive” REITs from benefitting from the deduction for dividends paid, the Department recommends [language based on the MTC model statute] to prevent otherwise legitimate REITS from being unduly penalized.” (Emphasis added).

What are the REIT-owned properties in Hawaii?

REIT-owned properties in Hawaii include the following:

Affordable Housing and Apartments

  • Moanalua Hillside Apartments (Douglas Emmett, Inc.)
  • Villas at Royal Kunia (Douglas Emmett, Inc.)
  • Waena Apartments (Douglas Emmett, Inc.)

Health Care Facilities

  • Hale Paawa Professional Services Building (Healthcare Realty Trust Incorporated)
  • Kapiolani Medical Center, Pali Momi (Healthcare Realty Trust Incorporated)
  • Kapiolani Medical Center Building for Women and Children (Healthcare Realty Trust Incorporated)
  • Kapolei Medical Park (Healthcare Trust of America, Inc.)
  • St. Francis Liliha Medical Office Building (Healthcare Trust of America, Inc.)
  • Hilo-MOB (Colony NorthStar, Inc.)
  • Kalama Heights (New Senior Investment Group, Inc.)

Hotel and Lodging

  • Embassy Suites-Waikiki Beach Walk (American Assets Trust)
  • Marriott-Lihue Kauai Resort (Hospitality Properties Trust)
  • Hyatt Regency-Maui (Host Hotels & Resorts, Inc.)
  • Fairmont-Kea Lani Maui (Host Hotels & Resorts, Inc.)
  • Hyatt Ka’anapali Beach (Host Hotels & Resorts, Inc.)
  • Hyatt Place-Waikiki Beach Courtyard-Waikiki Beach (RLJ Lodging Trust)
  • Marriott-Wailea Beach Resort & Spa (Sunstone Hotel Investors, Inc.)
  • Aston Waikiki Beach Hotel (Xenia Hotels & Resorts, Inc.)
  • Maui Mall (Jones Lang LaSalle Income Property Trust, Inc.)
  • Halekulani (Mitsui Fudosan Company Limited)
  • Hilton – Hawaiian Village (Park Hotels & Resorts, Inc.)
  • Hilton – Waikoloa Village (Park Hotels & Resorts, Inc.)


  • Mapunapuna (Select Income REIT)
  • Sand Island properties (Select Income REIT)

Office Buildings

  • Bishop Place (Douglas Emmett, Inc.)
  • Bishop Square (Douglas Emmett, Inc.)
  • Campbell (Select Income REIT)
  • Harbor Court (Douglas Emmett, Inc.)
  • Honolulu Club (Douglas Emmett, Inc.)
  • First Insurance Medical Center (Senior Housing Properties Trust)
  • Waterfront Plaza (Pacific Office Properties Trust)
  • Davies Pacific Center (Pacific Office Properties Trust)
  • Pan Am Building (Pacific Office Properties Trust)
  • Pacific Business News (Pacific Office Properties Trust)

Self-storage Facilities

  • Extra Space Storage (5 locations)
  • Public Storage (11 locations)
  • Corporate Property Associates 17 – Global Incorporated (4 locations)
  • Corporate Property Associates 18 – Global Incorporated (1 location)
  • Equity Commonwealth (1 location)

Shopping and Retail

  • The Shops at Kalakaua (American Assets Trust)
  • Waikele Center (American Assets Trust)
  • Waikiki Beach Walk Retail (American Assets Trust)
  • Ala Moana Center (General Growth Properties)
  • Prince Kuhio Plaza (General Growth Properties)
  • Whaler’s Village (General Growth Properties)
  • Safeway Shopping Center (Select Income REIT)
  • Salt Lake Shopping Center (Select Income REIT)
  • Waikele Premium Outlets (Simon Property Group)
  • Pearlridge Center (Washington Prime Group)
  • Ward Village (Howard Hughes Corporation)
  • King Street/Fort Street Mall (Lexington Realty Trust)

Theme Parks

  • Wet ‘n’ Wild Hawaii (CNL Lifestyle Properties, Inc.)


Other properties include a number of single family homes; health care facilities; wireless communication towers; and a variety of convenience stores; and gas stations.21

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