The acronym REIT stands forReal Estate Investment Trust, a company whose business is to own, operate or finance income-producing real estate in different sectors of the economy. For example, warehouses, office buildings, apartments, shopping malls, and hotels, among others. REITs do not develop real estate properties to resell them, to the extent that their business is to operate and own the real estate as part of their portfolio of investments.
REITs allow any person to indirectly invest in commercial real estate commercial assets and earn part of the income produced by the investment without buying the property themselves.
The following are the types of REITs:
- Equity REITs: These are the most common REITs because the company owns the real estate, which tenants lease. The shareholders obtain annual dividends that come from the payments made by the tenants for the lease after deducting the expenses associated with operating the properties. Equity REITs may also generate income from the sale of real estate.
- Public non-listed REITs: REITs registered with the Securities and Exchange Commission (SEC) whose shares are not traded on national stock exchanges. Any person may acquire the stock of a publicly non-listed REIT through an authorized broker or financial adviser.
- Publicly traded REITs: REITs registered with the SEC whose shares trade on national stock exchanges, such as the New York Stock Exchange (NYSE) or the NASDAQ. Any person may acquire the stock of a publicly traded REIT through an authorized broker.
- Private REITs: REITs exempt from SEC registration and whose shares do not trade on national stock exchanges. Commonly, these types of REITs are sold exclusively to institutional investors.
- Mortgage REITs: REITs that provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities. These REITs generate income from the net interest margin on their mortgage assets after deducting the funding cost and expenses.
[Last updated in July of 2021 by the Wex Definitions Team]
See Also
Real Estate Abbreviaitons