Real estate investment trust

A company that owns income-producing property and is usually listed on an exchange, so its shares can be bought and sold like any other share.

Example

A trust holding two hundred buildings, bought in seconds for the price of one share, against the 87,300 of cash a single 300,000 property required.

Important

It is an equity holding in an operating company with its own debt, management and strategy - not a fraction of a building. In most jurisdictions it must distribute the large majority of its rental profit to keep its tax treatment, which is why these vehicles pay out heavily.

Related terms

• Property syndication — An arrangement in which a sponsor buys one building with capital pooled from a group of passive investors and runs it on their behalf, typically for five to seven years.
• Net rental yield — Net operating income divided by price - rent after vacancy, management, maintenance, insurance, local property tax and any service charge, but before financing.
• Exchange-traded fund — A pooled fund whose units are listed and traded on an exchange throughout the session, at whatever price buyers and sellers agree rather than at the fund's own valuation.

Lessons that explain it

• Three instruments that happen to share an underlying asset — Owning a building, owning a listed property company and owning a slice of somebody else's deal are not three versions of one investment. They differ in almost everything except the bricks. (10 min)
• A real asset with a flattering picture of itself — Property earns its place through contracted income from a physical thing, driven by different forces from a share. But its low measured volatility is partly an artifact of being appraised rather than traded, and that artifact has a size you can compute. (9 min)

All 578 terms in the Investing glossary