Real estate investment trust (REIT)

A real estate investment trust (Reit) is an investment company that owns and leases out property.

A real estate investment trust (Reit) is a company that owns and leases out property. The exact rules governing how Reits work vary in different countries, but they must usually pay out most of their property income to shareholders each year (a minimum of 90% is typical). They may be allowed to develop properties as well as owning and leasing them, but rent must make up the majority of their income. They may also be subject to other restrictions, such as caps on leverage (the amount they can borrow against their assets). 

The compensation for these restrictions is that Reits pay no corporation tax on eligible income and capital gains – unlike traditional property companies, which must pay corporation tax. Instead, shareholders will pay income tax at the relevant rate on the income distributed to them each year. This makes Reits more tax efficient than most other property investment vehicles, because it avoids income being taxed twice. 

Reits typically focus on one or two sectors, such as offices, shopping malls or warehouses, rather than covering the entire property market. The range of available Reits also includes specialists in relatively niche sectors such as self-storage units or data-centre facilities. Investors can easily build a diversified portfolio of commercial property by selecting Reits from different sectors and different countries, or by buying an exchange traded fund (ETF) that tracks a broad index of property companies.

The share price of Reits can be volatile (in common with most property-related stocks), especially during periods of crisis when they may be more volatile than the wider stockmarket. However, Reits are much more liquid than direct investment in property or even open-ended property funds (which may struggle to sell assets quickly and can be forced to suspend redemptions if lots of investors want to exit at the same time).

Recommended

Margin call
Glossary

Margin call

When an investor borrows to bet on markets, they put down a deposit known as “margin”.
2 Apr 2021
Resource curse
Glossary

Resource curse

The term “resource curse” refers to the observation that countries with abundant natural resources also tend to be less economically developed than th…
14 Jan 2021
Balance of payments
Glossary

Balance of payments

The balance of payments refers to the accounts that sum up a country's financial position relative to other countries.
8 Jan 2021
Yield-curve control
Glossary

Yield-curve control

Yield-curve control is when a central bank aims to control long-term interest rates by pledging to buy (or sell) as many long-term bonds as needed to …
25 Dec 2020

Most Popular

Lab-grown meat: how “moo’s law” will drive innovation
Soft commodities

Lab-grown meat: how “moo’s law” will drive innovation

Jim Mellon and Anthony Chow, co-founders of Aim-listed Agronomics, explain why they believe that “cellular agriculture” will benefit from massive long…
16 Apr 2021
The bitcoin bubble will burst: here’s how to play it
Bitcoin

The bitcoin bubble will burst: here’s how to play it

The cryptocurrency’s price has soared far beyond its fundamentals, says Matthew Partridge. Here, he looks at how to short bitcoin.
12 Apr 2021
Lab-grown meat: the new agricultural revolution
Soft commodities

Lab-grown meat: the new agricultural revolution

Vegan alternatives are taking off, but the future of food technology lies in lab-grown meat – cultivating steaks and burgers from animal cells, says A…
16 Apr 2021