What is a REIT?

About REITs – Real Estate Investment Trusts

REITs (Real Estate Investment Trusts) are companies that own or finance income-producing real estate across a range of property sectors such as offices, apartment buildings, warehouses, retail centres, medical facilities, data centres, infrastructure and hotels. Most REITs focus on a particular property type, but some will hold several types of properties in their portfolios.

To qualify as a REIT these real estate companies have to meet a strict set of requirements which include having to pay out at least 90% of income in the form of dividends to shareholders, with some paying the full 100%.

Most REITs trade on major stock exchanges, and offer a number of benefits to investors

Buying, selling and trading REIT shares gives easy access the real estate sector without the associated troubles of financing and managing physical properties. Also, investors enjoy the benefit of monthly dividend pay-outs.

There are more than 50 REITs listed on the London Stock Exchange with a value of around £54 billion.

How do REITs create revenue?

By leasing space and collecting rent on its real estate, the company generates income which is then paid out to shareholders in the form of dividends. REITs must pay out at least 90 % of their taxable income to shareholders—and most pay out 100 %. In turn, shareholders pay the income taxes on those dividends.

Benefits of investing in REITs

REITs historically have delivered attractive total returns, based on high, steady dividend income and long-term capital appreciation. They also offer portfolio diversification as they have a low correlation with other assets and help reduce overall portfolio risk and increased returns. These are some of the benefits of REIT-based real estate investment.

How have REITs performed historically?

Investors have enjoyed REITs' track record of attractive returns and reliable and growing dividends, combined with long-term capital appreciation through stock price increases over the past 45 years This compares well to the broader stock market as well as other assets such as bonds.

REITs position their properties to attract reliable, paying tenants. They earn rental income, manage their property portfolios and buy and sell assets to build value and profit throughout long-term real estate cycles.

Listed REITs are professionally managed, publicly traded companies that manage their businesses with the goal of maximising shareholder value.

How to invest in REITs

An individual investor can buy shares in a REIT listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF).

Investors also have the ability to invest in public non-listed REITs and private REITs, but as always, do thorough research and seek professional financial advice before investing.

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