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REITs · Real Estate
REITs, explained
Learn what real estate investment trusts are, how they make money, and how to read the market data and headlines around them.
What a REIT is and why it exists
A REIT, short for real estate investment trust, is a company that owns, finances, or operates income-producing real estate. Instead of buying a building directly, investors can buy shares in the REIT, much like they would buy stock in any other company.
REITs were created to make real estate investing more accessible and to give companies a way to raise money for property portfolios. In many countries, they come with special tax rules, but the exact rules vary by jurisdiction.
The main types of REITs you will see
Equity REITs own properties and collect rent. These are the most common type and can include apartments, offices, warehouses, shopping centers, data centers, hotels, and healthcare facilities.
Mortgage REITs, often called mREITs, do not mainly own buildings. They invest in real estate debt and related securities, so their profits depend more on lending spreads and interest rates than on rent from tenants.
How REITs make money
An equity REIT typically earns revenue by charging rent to tenants. After paying property expenses, interest, and other costs, it keeps the cash left over, which can be used for dividends, new purchases, or debt reduction.
A mortgage REIT usually earns income from the difference between what it earns on real estate loans or mortgage-backed assets and what it pays to fund those investments. Because it often uses borrowed money, changes in financing costs can matter a lot.
Why REITs often pay dividends
Many REITs pay regular dividends because their business model generates steady cash flow. In some markets, REITs must distribute a large share of taxable income to keep their special status, though the exact requirement depends on the country.
That dividend rule is one reason REITs are often discussed as income investments. Still, the size and reliability of payouts can change with rent collections, property values, interest costs, and management decisions.
How property values show up in REIT prices
A REIT share price reflects both the value of the real estate it owns and the market’s view of its future cash flow. If investors expect higher rent growth, lower vacancy, or better financing terms, they may value the REIT more highly.
If investors worry about empty space, falling rents, rising borrowing costs, or trouble refinancing debt, the share price can fall. That is why REIT headlines often mention occupancy, leasing, same-property income, and net asset value, which is an estimate of what the properties are worth minus liabilities.
Why interest rates matter so much
Interest rates can affect REITs in two big ways. First, higher rates can make borrowing more expensive, which hurts REITs that rely on debt to buy or improve properties.
Second, when safer investments such as bonds offer higher yields, some investors may demand a higher return from REITs too. That can put pressure on REIT share prices even if the properties themselves are still performing well.
Common terms in REIT coverage
Funds from operations, usually shortened to FFO, is a cash-flow style measure many analysts use for REITs because standard earnings can understate property business performance. Core FFO and adjusted FFO are also common, but the exact calculation can differ by company.
Occupancy rate shows how much of a property portfolio is rented. Same-property or same-store growth compares income from properties owned over two periods, which helps isolate performance from acquisitions and sales.
Common questions
How is a REIT different from a regular real estate company?
A REIT is a real estate company that meets specific legal and tax rules, which usually include limits on how it invests and how much income it distributes. A regular real estate company can operate more flexibly, but it may not receive the same tax treatment or follow the same payout rules.
Do REITs always own buildings?
No. Equity REITs own properties, but mortgage REITs focus on real estate loans and mortgage-related assets. Some REITs also specialize in niche property types such as cell towers, timberland, self-storage, or data centers.
Why do REIT shares move even when rent has not changed?
REIT shares are traded in public markets, so they respond not only to current rent but also to expectations. Interest rates, refinancing risk, property valuations, and investor sentiment can all change the share price before the underlying cash flow changes.
Are REIT dividends guaranteed?
No. REIT dividends depend on cash flow, debt costs, property performance, and management choices. A company can raise, cut, pause, or restructure payouts if business conditions change.
What should I look for in a REIT data page?
The most useful fields are usually dividend yield, FFO or adjusted FFO, occupancy, debt levels, and the type of properties owned. It also helps to check whether the REIT focuses on equity properties or mortgage assets, because those businesses react differently to the market.