1.2.1.1. Real Estate Investment Trust (REIT)
A real estate investment trust (REIT) is a trust that buys, develops, manages, and sells a portfolio of income-producing real estate properties. As we have learned, a trust sells shares of beneficial interest. The holder of these shares receives benefits from the assets held by the trust—in this case, real estate—but does not own the actual assets.
REITs acquire and develop properties mostly to keep in their portfolios, rather than to resell after development. A REIT’s shareholders receive dividends from investment income (primarily rent). They also receive capital gains distributions when properties are sold. REITs do not pass through losses to shareholders.
The IRS recognizes a REIT as an entity taxable as a corporation, but it exempts REITs from corporate taxation as long as they distribute at least 90% of their income to their shareholders. To qualify as a REIT the trust must also:
• invest at least 75% of its total assets in real estate
• receive at least 75% of its annual gross income from real estate (e.g., rents)
• receive at least 95% of its annual gross income from real estate, dividends, and stock market investments
• be managed by a board of directors or trustees
• have a minimum of 100 shareholde