Real Estate Investment Trust (REIT)

What is a ‘Real Estate Investment Trust – REIT’

A REIT is a type of security that invests in real estate through property or mortgages and often trades on major exchanges like a stock. REITs provide investors with an extremely liquid stake in real estate. They receive special tax considerations and typically offer high dividend yields.

Explaining ‘Real Estate Investment Trust – REIT’

REITs, an investment vehicle for real estate that is comparable to a mutual fund, allowing both small and large investors to acquire ownership in real estate ventures, own and in some cases operate commercial properties such as apartment complexes, hospitals, office buildings, timber land, warehouses, hotels and shopping malls.

REIT History

REITs have existed for more than 50 years in the U.S. Congress granted legal authority to form REITs in 1960 as an amendment to the Cigar Excise Tax Extension of 1960. That year The National Association of Real Estate Investment Funds, a professional group for the promotion of REITs is founded. The following year it changed its name to the National Association of Real Estate Investment Trusts (NAREIT).

International REITs

​Since their development in Europe, REITs have become available in many countries outside the United States on every continent on Earth. 

3 Main Kinds of REITs in the U.S.

1. Equity REITs invest in and own properties, that is, they are responsible for the equity or value of their real estate assets. Their revenues come principally from leasing space—such as in an office building—to tenants. They then distribute the rents they’ve received as dividends to shareholders. Equity REITs may sell property holdings, in which case this capital appreciation is reflected in dividends. Timber REITs will include capital appreciation from timber sales in their dividends. Equity REITs account for the vast majority of REITs.

Further Reading

  • Real estate investment trusts: A review of the financial economics literature – [PDF]
  • The transmission of shocks across real estate investment trust (REIT) markets – [PDF]
  • Capitalizing on the state: The political economy of real estate investment trusts and the 'resolution'of the crisis – [PDF]
  • The time-varying nature of the link between REIT, real estate and financial asset returns – [PDF]
  • Financing choice and liability structure of real estate investment trusts – [PDF]
  • The impact of economic and financial factors on UK property performance – [PDF]
  • Hotel real estate investment trusts' risk features and beta determinants – [PDF]
  • The fractal structure of real estate investment trust returns: The search for evidence of market segmentation and nonlinear dependency – [PDF]
  • An investigation of the change in real estate investment trust betas – [PDF]
  • Real estate returns and the macroeconomy: some empirical evidence from real estate investment trust data, 1972-1991 – [PDF]