Making a fair value assessment of a public traded REIT is not as easy as it appears.
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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.
BREAKING DOWN '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.
All REITs must have at least 100 shareholders, no five of whom can hold more than 50% of shares between them. At least 75% of a REIT's assets must be invested in real estate, cash or U.S. Treasurys; 75% of gross income must be derived from real estate.
REITs are required by law to maintain dividend payout ratios of at least 90%, making them a favorite for income-seeking investors. REITs can deduct these dividends and avoid most or all tax liabilities, though investors still pay income tax on the payouts they receive. Many REITs have dividend reinvestment plans (DRIPs?), allowing returns to compound over time.
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