REIT
Quick definition: A REIT, or real estate investment trust, is a company that owns income-producing property and pays out most of its taxable income to shareholders as dividends.
In plain English
A REIT lets you own part of properties such as apartments, offices, warehouses or shopping centres without buying a building yourself. In the United States, a REIT generally has to distribute at least 90% of its taxable income to shareholders, which is why REITs often have high dividend yields.
Example
A REIT collects rent from its properties, pays its costs and passes most of the income to shareholders each month or quarter.
Why it matters
REITs offer high income and diversification into real estate. But they are sensitive to interest rates and their dividends may be taxed differently from ordinary dividends.
Common mistakes
- Judging a REIT’s payout by earnings. Analysts use funds from operations (FFO) instead.
- Ignoring debt, which can be high.
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Past performance and projected returns do not guarantee future results.
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