Real Estate Investment Trusts (REITs)

A real estate investment trust is a company that primarily owns and operates income-generating real estate such as shopping malls, hotels, apartment complexes and office buildings. Some will also finance real estate as well. Many REITs are publicly traded on stock exchanges. REITs were created by Congress in 1960 to allow the average investor to buy into large-scale real estate operations by purchasing equity. For a company to operate as an REIT in the U.S., several provisions must be met under the Tax Code. These include having at least 100 shareholders, investing no less than 75 percent of its total assets in real estate, obtaining no less than 75 percent of its gross earnings from mortgage interest or rents, and paying each shareholder at least 90 percent of its annual income as a dividend. REITs offer investors certain appreciable advantages such as strong, dependable dividends, portfolio diversification and reliable long-term performance.