It stands for real estate investment trust; an entity that holds a portfolio of commercial real estate or real estate loans and operates these holdings for income generation. The trust issues securities on these holdings that allow individuals to invest in large-scale, income-producing real estate units. REITs invest in real assets and derive most of their income from real estate operations, including rents from properties and interest from mortgage loans.
As a security, a real estate investment trust (REIT) trades like a stock on organized exchanges and represent income-producing real estate assets. Typically, REITs are registered with an exchange regulatory and hence are publicly traded (publicly traded REITs). There are also privately held REIT (REITs that are not publicly traded).
REITs enjoy special tax treatment and typically offer investors high dividend yields, in addition to the high liquidity of REIT as a security. REITs, structured as a corporation, are not typically taxed at the entity level, and hence holders can avoid double taxation on dividends.
Due to its unique structure, a REIT security pays out a higher rate of dividends than equities or many fixed income instruments. Dividends received from REIT holdings are taxed as regular income.
The main types of REITs are equity REITs, retail REITs, residential REITs, office REITs, mortgage REITs, hybrid REITs and healthcare REITs.
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