Real Estate Investment Trusts (REITs) - Real Estate Investment Trusts
A real estate investment trust (REIT) is a dividend-paying stock that focuses on real estate. REITS accumulate a pool of money through an initial public offering (IPO), which is then used to buy, develop, manage and sell assets in real estate. The IPO is identical to any other security offering with many of the same rules regarding prospectuses, reporting requirements and regulations; however, instead of purchasing stock in a single company, the owner of one REIT unit is buying a portion of a managed pool of real estate. This pool of real estate then generates income through renting, leasing and selling of property and distributes it directly to the REIT holder on a regular basis.
Shares are offered to the public via the major exchanges. In this way, a REIT is similar to any other stock that represents ownership in an operating business. Each share REIT represents a proportionate fraction of ownership in each of the underlying properties. Unlike commons stock however, REITs are similar to mutual funds in that they must distribute most of its profits as dividends.