# REITS? What is this? **URL:** \ **Category:** Factual Questions\ **Created:** [November 2, 2004, 7:34pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595 "2004-11-02T19:34:56Z")\ **Posts on this page:** 7\ **Page:** 1
**Author:** ![FlippyFly](https://avatars.discourse-cdn.com/v4/letter/f/e95f7d/32.png) [@FlippyFly](https://boards.straightdope.com/u/FlippyFly)\ **Post date:** [November 2, 2004, 7:34pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595/1 "2004-11-02T19:34:56Z")
I just looked up my friend’s company (First Industrial - Ticker FR - if you must know) and acording to Morningstar, the industry is listed as “REITS.” What is this? I assume it is something like Real Estate Income Trust… Super! How is it different from a normal company? ---
**Author:** ![Moirai](https://avatars.discourse-cdn.com/v4/letter/m/96bed5/32.png) [@Moirai](https://boards.straightdope.com/u/Moirai)\ **Post date:** [November 2, 2004, 7:35pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595/2 "2004-11-02T19:35:39Z")
Real estate investment trust ---
**Author:** ![shelbo](https://avatars.discourse-cdn.com/v4/letter/s/3d9bf3/32.png) [@shelbo](https://boards.straightdope.com/u/shelbo)\ **Post date:** [November 2, 2004, 7:49pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595/3 "2004-11-02T19:49:02Z")
**EJs Girl** is right on what the letters stand for. A REIT is a special type of real estate holding company that receives special tax benefits. Because of these tax benefits, the REIT has become a very popular way to holding large portfolios of property. Equity Office Properties (Sam Zell’s company) is a REIT which is also the largest owner of commercial office buildings in the country. (Basically, a REIT is required to diburse 95% of its annual profit in the form of dividends to shareholders or owners. As long as it does this, and follows a bunch of other rules and regulations regarding income sources (e.g., the company’s income must be made up mostly of rental income) etc., they don’t have to pay any corporate level income taxes. ) ---
**Author:** ![asc165](https://avatars.discourse-cdn.com/v4/letter/a/9fc348/32.png) [@asc165](https://boards.straightdope.com/u/asc165)\ **Post date:** [November 2, 2004, 7:50pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595/4 "2004-11-02T19:50:53Z")
REIT’s are securities that sell like stocks and/or mutual funds. They invest in real estate directly, either through properties or mortgages. Revenue generally is derived from rent (Equity REIT), or interest generated through mortgages (Mortgage REITS). Some are a combination (Hybrid REIT). They can be very attractive investments, but like anything else in the financial word, have some pitfalls. Research carefully if you intend to invest. ---
**Author:** ![yabob](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/yabob/32/2821_2.png) [@yabob](https://boards.straightdope.com/u/yabob)\ **Post date:** [November 2, 2004, 7:56pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595/5 "2004-11-02T19:56:02Z")
A REIT operates under different rules than a normal company, primarily so that they can generally avoid paying taxes. They have to have at least 75% of their assets in real estate (can include mortgage paper), and are required to return 95% of their income to their shareholders in dividends. They typically pay high dividend yields, but may behave differently than the rest of the market - one of the criticisms is that they often underperform in bull markets. Some people like to view them as hedge investments for this reason. There are many various types, most of which specialize in some particular form of real estate - office buildings, apartment complexes, malls, storage space, health care facilities, simply holding mortgages, etc. Different considerations apply for valuation than would for a normal company - REIT’s are allowed to write off depreciation and pay dividends from it, and will often go for years without earnings, or with losses, continuing to distribute dividends the whole time. Cash flow is a more important consideration for valuing a REIT - FFO (funds from operations) is usually considered the important metric. One popular rule of thumb is a that a REIT should be paying about 85% of the FFO in dividends. A motley fool article: [http://www.fool.com/dripport/1999/dripport991209.htm](http://www.fool.com/dripport/1999/dripport991209.htm) A much more detailed resource is NAREIT: [http://www.nareit.com/](http://www.nareit.com/) ---
**Author:** ![Polycarp](https://avatars.discourse-cdn.com/v4/letter/p/82dd89/32.png) [@Polycarp](https://boards.straightdope.com/u/Polycarp)\ **Post date:** [November 2, 2004, 7:56pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595/6 "2004-11-02T19:56:09Z")
[NAREIT](http://www.nareit.com/)’s website – the National Association of REITs. Essentially, a REIT is organized as a trust rather than a normal corporation, and functions more or less as a mutual fund for investment in real estate. It’s subject to special rules which often allow it more profitability than a typical real estate corporation. A REIT buys, and rents out and manages, buildings, often in a given geographic area and/or in a building category within its area(s) of expertise (apartment complexes, office buildings, warehouse space, etc.), and is owned by investors – “trustors” – who find it a profitable venture. [Investopedia.com](http://Investopedia.com) gives this definition and explanation: > [@](#): > > **Real Estate Investment Trust - REIT** > A security that sells like a stock on the major exchanges and invests in real estate directly, either through properties or mortgages. > > REITs receive special tax considerations, and typically offer investors high yields as well as a highly liquid method of investing in real estate. > > **Equity REITs:** Equity REITS invest in and own properties (thus responsible for the equity or value of their real estate assets). Their revenues come principally from their properties’ rents. > > **Mortgage REITs:** Mortgage REITs deal in investment and ownership of property mortgages. These REITs loan money for mortgages to owners of real estate, or invest in (purchase) existing mortgages or mortgage backed securities. Their revenues are generated primarily by the interest that they earn on the mortgage loans. > > **Hybrid REITs:** Hybrid REITs combine the investment strategies of Equity REITs and Mortgage REITs by investing in both properties and mortgages. > > Individuals can either invest in REITs by purchasing their shares directly on an open exchange or by investing in a mutual fund that specializes in public real estate. An additional benefit to investing in REITs is the fact that many are accompanied by dividend reinvestment plans (DRIPs). Amongst other things REITs invest in real estate, shopping malls, office buildings, apartments, warehouses, and hotels. Some REITs will invest specifically in one area of real estate, shopping malls for example, or in one specific region, state or country. Basically investing in REITs is a liquid, dividend paying means of participating in the real estate market. ---
**Author:** ![yabob](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/yabob/32/2821_2.png) [@yabob](https://boards.straightdope.com/u/yabob)\ **Post date:** [November 2, 2004, 8:03pm UTC](https://boards.straightdope.com/t/reits-what-is-this/272595/7 "2004-11-02T20:03:13Z")
Oh, and FR is a REIT that specializes in industrial properties - they invest in warehouses and manufacturing facilities.