What are Real Estate Investment Trusts?


Real Estate Investment Trusts, more commonly abbreviated as REITs, is a company that owns and operates income-producing real estate. Associated assets may be: offices, apartments, shopping centres and hotels.

There are two main types of REITs. The first–and most common -type is referred to as Equity-based REITs. These companies own the real estate and generate return based upon rental income, management fees and the ultimate sale of an asset. Secondly, mortgage REITs(mREITs) invest in the underlying mortgages of areal estate asset and produce income through interest payments.

The majority of REITs are publicly traded on stock exchanges such as The NASDAQ. There are some non-listed REITs and private REITs, but these are typically only available to larger institutional investors.

REITs offer everyday investors the opportunity to diversify their investment portfolio with income-generating real estate. REITs typically offer attractive risk-adjusted returns and provide a steady income stream. Due to the REIT regulations, they must pay back 90% of earning to investors. This reduces their ability to reinvest or purchase new assets and hinders their growth. The downside of this is potentially restricting long-term capital appreciation.

Key Takeaways

•The majority of REITs are liquid investments due to being publicly traded on major stock exchanges.

•Transparent in their nature, REITS although their investors to see exactly what the underlying real estate holdings are.

•REITs offer individual investors a gateway to access the real estate market without having to own or manage the asset themselves.

•Still subject to market risk, the state of economy and interest-rate environment can affect underlying assets.

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Pieter Borremans
By Pieter Borremans

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