Real Estate Investment Trust (REIT)
A real estate mutual fund, allowed by income tax laws to avoid the corporate income tax. It allows investors, large and small, to participate in large real estate ventures, without double taxation. A REIT sells shares of ownership and must invest in real estate or mortgage loans. Further, a REIT must meet certain other requirements under the law: it must have a minimum number of shareholders, a widely dispersed ownership, and certain income tests. In the United States, a Real Estate Investment Trust must distribute 95% of its income to shareholders, which is not taxable at the corporate level but is taxable at the individual shareholder level.
REIT shares are either publicly or privately trade. Given that REITs are special entities tasked entirely (or almost entirely) with operating real estate, unique metrics have been created such as FFO and AFFO to help investors properly analyze the performance of these companies.
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