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What Is a REIT?

March 04, 1997|JAMES F. PELTZ

Real estate investment trusts are companies that own and manage portfolios of real estate. The shares of most REITs are publicly traded.

REITs avoid corporate taxes by distributing at least 95% of their net income to shareholders, which is why the trusts typically have high dividend yields.

The trusts generally invest in a variety of commercial properties, including shopping centers, office buildings, medical facilities, apartments and other residential housing, nursing homes and hotels.

Some, called equity REITs, buy ownership positions in real estate. Mortgage REITs lend money to developers and pass along the interest income to their shareholders. Others, called hybrid REITs, take both equity and mortgage positions.

Other trusts invest in airplanes, rail cars and other assets that can then be leased to operators.

REITs differ from real estate limited partnerships, which are managed by general partners that decide not only the partnership's investments, but also how much income will be distributed to the limited partners. Also, the partners' equity interests tend to be less liquid--that is, they're more difficult to trade than REIT shares traded on open markets.

More information about REITs can be obtained from their trade group, the National Assn. of Real Estate Investment Trusts, in Washington at (202) 785-8717.

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