What is a REIT?
A Real Estate Investment Trust, or "REIT", is similar to a mutual fund that invests in real estate—a corporation or trust which qualifies as a REIT does not pay corporate income tax. To qualify as a REIT, a company must comply with various provisions of the IRS tax code, including the requirements that income be derived primarily from real property and the company distribute at least 90 percent of taxable income to its shareholders. REITs are designed to bring professional investment and asset management expertise together with equity capital and conservative debt leverage, in order to generate consistent predictable dividends to shareholders.

Development of REITs
First created by congress in 1960, REITs were designed to provide the public with a vehicle to participate in the equity ownership of commercial real estate. In the intervening years, through various revisions of the tax laws and management experience, REITs have developed into a well-recognized public and private investment asset class, which now spans many "specialty-asset" classes beyond traditional shopping malls and office buildings. REITs experienced tremendous growth starting in the 1990s.

Investment Returns
Because of the requirement to distribute a minimum of 90 percent of taxable income, REITs pay a relatively high dividend compared to the S&P average.

Liquidity and Low Volatility
Unlike direct property ownership, publicly-traded REITs are also a highly liquid form of property ownership and investment. And due to their high dividend yield, REITs have historically been less volatile than the stock market taken as a whole.

Diversification of Investment Risk
REITs by nature own a diversified portfolio of real estate and offer a significantly more diversified portfolio than the average investor or property owner could obtain individually. REITs generally follow diversification strategies including geographical area and type of tenant.