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What is a REIT?

A Real Estate Investment Trust, or "REIT" (pronounced "reet"), is a company that owns, and in most cases, operates income-producing real estate.  To be a REIT, a company must distribute at least 90% of its taxable income to shareholders annually in the form of dividends.

Types Of REITs

There are approximately 200 publicly traded REITs in the U.S. today, with assets totaling more than $475 billion.  The shares of these companies are traded on major stock exchanges, which sets them apart from traditional real estate.

The Evolution of REITs

The U.S. Congress created REITs in 1960 to give anyone and everyone the ability to invest in large-scale commercial properties.  The REIT industry has grown dramatically in size and importance since then, and during the last decade in particular.  Factors sparking increased investor interest include:

  • REITs - also known as real estate stocks - have outperformed most other major market benchmarks over three decades with significantly less volatility.
     
  • REITs operate commercial properties in nearly every major metropolitan area across the country and several in international locations.

In 2001, Standard & Poor's (S&P) recognized the evolution and growth of the REIT industry as a mainstream investment by adding REITs to its major indexes, including the S&P 500.

Dividends and Diversification

Because REITs must pay out almost all of their taxable income to shareholders, investors can look to REITs for reliable and significant dividends (typically four times higher than those of other stocks, on average).  Analysis of historical data concluded that the relatively low correlation between REITs and other stocks and bonds makes them a powerful diversification tool.  Any investor can build a greater long-term wealth by combining homeownership and REIT stocks as part of a diversified investment portfolio.

Source:
NAREIT (National Association of Real Estate Investment Trusts) website, www.nareit.com
or contact:
NAREIT, 1129 20th Street, NW, Suite 305, Washington, DC 20036,
(202) 785-8717 or 1-800-3NAREIT).