Real Estate
Investment Trusts

A REIT is a company that owns, operates, or finances income-producing real estate. It allows investors to gain exposure to real estate through a professionally managed structure without directly owning or managing properties.

How a REIT generates returns depends on the type of assets it holds.

• Equity REITs own and operate income-producing properties, generating returns from rental income and potential appreciation in property values. This is the most common type
• Mortgage REITs invest in real estate debt — mortgages and mortgage-backed securities — generating income primarily from interest earned on those loans
• Hybrid REITs hold both properties and real estate debt, generating returns from both sources. This structure is less common

To maintain REIT status, a REIT must distribute at least 90% of its taxable income to shareholders each year, which is why REITs are generally income-oriented investments. The amount and timing of any distributions are not guaranteed.

The primary difference between public and private REITs is how they are structured, regulated, and accessed by investors.

• Public REITs are registered with the SEC and may be either traded on stock exchanges or offered as non-traded vehicles. Publicly traded REITs can be bought and sold daily, with share prices fluctuating based on market conditions and investor sentiment, while non-traded REITs are not listed on exchanges and typically offer limited liquidity.
• Private REITs are not registered with the SEC and are not publicly traded. They are generally offered through private placements and designed for longer-term investment horizons, so their performance is tied more closely to the underlying real estate than to daily market movements. Because private REITs are valued periodically rather than priced continuously like exchange-traded REITs, reported values may not reflect current market conditions, and liquidity is limited.

The primary difference between traded and non-traded REITs is how they are bought and sold, and how their values are determined.

• Traded REITs are listed on public stock exchanges and can be bought and sold daily. Their share prices fluctuate based on market conditions, investor sentiment, and the performance of the REIT’s management and underlying properties.
• Non-traded REITs are not listed on exchanges and typically offer only limited redemption programs, which may be suspended. Share values are set periodically — sometimes only annually — using appraisals rather than market trading, so reported values may lag current conditions and less frequent price movement does not mean lower risk.

REIT investments are subject to risks including possible loss of principal, changes in property values, interest rate fluctuations, tenant occupancy levels, and broader economic conditions. Unlike direct ownership of real estate, an investment in a REIT is an investment in the entity and its sponsor; investors depend on the sponsor’s ability to acquire, operate, and manage the underlying assets. Distributions are not guaranteed. Private and non-traded REITs may also involve limited liquidity, infrequent or delayed valuations, and longer holding periods.

REITs can invest across a wide range of property types, including:

• Multifamily housing
• Industrial and logistics facilities
• Retail centers
• Office buildings
• Healthcare and senior housing
• Hospitality assets

Some REITs are diversified across multiple sectors, while others focus on a specific niche.

REIT investments are subject to risks including changes in property values, interest rate fluctuations, tenant occupancy levels, and broader economic conditions. Private REITs may also involve limited liquidity and longer holding periods.

REITs may be appropriate for investors seeking income, diversification, and exposure to real estate without direct ownership responsibilities.

REITs are generally not subject to corporate-level federal income tax, provided they meet certain requirements, including distributing at least 90% of their taxable income to shareholders.

As a result, REIT distributions are typically taxed as ordinary income to investors, though portions may be classified differently depending on the structure (such as return of capital or capital gains).

Tax treatment can vary, and investors should consult with a qualified tax professional based on their individual situation.