what are reits stocks: REITs Explained

This article answers what are reits stocks, explaining how REITs work, their types, key metrics (FFO, NAV), investment routes, tax and regulatory matters, sector risks and benefits, and practical s...

2025-11-11 16:00:00

By Lily Wong

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Real Estate Investment Trusts (REITs)

what are reits stocks — In the context of U.S. stocks and investing, REITs (Real Estate Investment Trusts) are companies that own, operate, or finance income-producing real estate. REIT shares commonly trade on public stock exchanges and typically distribute a large portion of taxable income to shareholders as dividends. This guide explains what are reits stocks, how they work, the main types, common valuation metrics, benefits and risks, and practical advice for analyzing and choosing REIT exposure.

Overview

Purpose and role

REITs were created to provide individual investors access to diversified real estate ownership and to bring real estate assets into public capital markets. By pooling capital, REITs acquire properties or mortgage assets at scale, enabling smaller investors to gain exposure to commercial real estate income streams without directly buying or managing buildings.

Typical investment objectives

Income generation: REITs typically distribute most taxable income as dividends, making them an income-focused asset.
Portfolio diversification: Real estate can behave differently from stocks and bonds, offering a diversification benefit.
Potential capital appreciation: Property value growth, successful development or redevelopment projects, and favorable leasing trends can drive share price gains over time.

History and Evolution

Origins

REITs were established in the United States by an Act of Congress in 1960 to allow everyday investors the opportunity to invest in large-scale, income-producing real estate. The law provided a tax-efficient structure: companies that meet specific asset, income and payout rules can avoid corporate income tax at the entity level, passing income to investors instead.

Industry development and global adoption

Since 1960, REITs have evolved from a modest industry into a major segment of the public markets. Key milestones include expansions in eligible property types, introduction of publicly traded REIT indices, and regulatory clarifications that broadened investor protections. Over time, many countries adopted REIT-like regimes, enabling global institutional and retail participation in real estate via listed vehicles.

As of Jan 12, 2026, according to Nareit, listed U.S. REIT market capitalization remained a significant component of public markets, reflecting continued investor demand for income-oriented, real-estate exposure. Market size, liquidity, and the mix of sectors have shifted with macro conditions and capital flows.

Types of REITs

Equity REITs

Equity REITs own and operate physical, income-producing properties. Their revenue primarily comes from rents paid by tenants. Examples of property types include apartments, offices, retail centers, warehouses, healthcare facilities, and data centers. Equity REITs tend to focus on property operations, leasing, and asset management.

Mortgage REITs (mREITs)

Mortgage REITs invest in mortgage loans or mortgage-backed securities (MBS). They earn income from the interest spread between borrowing costs and the yields on mortgage assets. Mortgage REITs are more sensitive to interest-rate moves and credit conditions than equity REITs because their earnings depend heavily on financing margins.

Hybrid REITs

Hybrid REITs combine equity and mortgage activities, holding property assets while also investing in mortgages or mortgage-backed securities. Their performance characteristics sit between equity REITs and mREITs.

By trading status

Publicly traded REITs: Listed on stock exchanges and offer the highest liquidity and price transparency.
Public non-traded REITs: Registered but not listed on major exchanges; they often have limited liquidity and can carry higher fees.
Private REITs: Not registered for public trading; typically available to accredited investors and present valuation and liquidity constraints.

For investors asking what are reits stocks, the emphasis in most public-discussion is on publicly traded equity REITs because they trade like ordinary stocks and provide transparent pricing and liquidity.

How REITs Work

Corporate and tax structure

To qualify as a REIT under U.S. federal rules, an entity must meet several requirements including:

Asset test: A high proportion of total assets must be real estate-related.
Income test: A large share of gross income must come from real-estate related sources (rent, mortgage interest, gains from sales of real estate).
Payout requirement: REITs generally must distribute at least 90% of taxable income to shareholders as dividends to maintain pass-through tax status.
Organizational form: The entity must be a taxable corporation or trust and managed by a board of directors or trustees.

When a REIT fulfills these rules, it can avoid paying federal corporate income taxes on qualifying earnings, which encourages distribution of cash to investors in the form of dividends.

Income generation and distribution

Equity REITs earn revenue primarily from rent and ancillary services. Mortgage REITs generate interest income. REITs typically distribute the majority of taxable income to shareholders as dividends, which is a structural reason for their higher yield profiles compared with many regular corporations.

Common Property Sectors

REITs can specialize by property type. Different sectors have distinct demand drivers, lease structures, and risk exposures:

Residential (apartments): Driven by population growth, household formation and affordability trends.
Office: Depends on employment, corporate leasing demand, and work patterns.
Retail: Anchored to consumer spending, tenant mix, and e-commerce trends.
Industrial/Logistics: Driven by trade flows, e-commerce fulfillment, and supply-chain demands.
Data centers: Demand tied to cloud computing, AI workloads, and latency-sensitive applications.
Healthcare: Long-term leases to medical operators, demographic trends.
Self-storage: Consumer demand and moving/downsizing trends.
Hotels/Lodging: Sensitive to travel demand cycles and operate under variable-rate occupancy models.
Cell towers and communications infrastructure: Supported by mobile traffic and 5G deployments.
Timberland: Commodity-linked, with biological growth and timber prices driving returns.

Investing in REIT Stocks

Ways to invest

Investors can gain exposure to REITs through several vehicles:

Individual publicly traded REIT shares: Buy and sell on exchanges like ordinary stocks for targeted sector or company exposure.
REIT ETFs and mutual funds: Provide diversified exposure across many REITs and can be sector-specific or broad-market.
Public non-traded REITs: Offer private-like returns with limited liquidity and additional fees.
Private REITs and interval funds: Typically for accredited investors, with limited liquidity and bespoke strategies.

Brokerage and liquidity considerations

Publicly traded REITs trade on exchanges and can be bought through brokerages. For tokenized or blockchain-based real-estate products, the Bitget exchange and Bitget Wallet provide access and custody solutions that support crypto-native investment vehicles. Investors should confirm the trading venue and liquidity profile before transacting. Publicly traded REITs generally offer daily liquidity and transparent prices, while non-traded and private REITs have limited redemption windows and more complex valuation methods.

Key Financial Metrics and Valuation

Funds From Operations (FFO) and Adjusted FFO (AFFO)

FFO is a widely used REIT performance measure that adjusts GAAP net income by adding back real estate depreciation and amortization and excluding gains or losses on property sales. FFO better reflects cash generated by property operations than GAAP earnings for asset-heavy real-estate companies. AFFO adjusts FFO further for recurring capital expenditures and other non-cash or non-recurring items to estimate distributable cash flow.

Net Asset Value (NAV)

NAV estimates the underlying value of a REIT's real estate portfolio, often on a per-share basis. Comparing share price to NAV can help indicate whether the market values the REIT at a premium or discount to estimated asset values. NAV calculation requires appraisals, cap-rate assumptions and updated property-level metrics.

Other important metrics

Dividend yield: Annual dividend divided by share price; a key metric for income investors.
Payout ratio: Dividends divided by FFO or AFFO; indicates sustainability of distributions.
Occupancy rates: Percentage of rentable space that is leased; affects rental income stability.
Same-store Net Operating Income (NOI): NOI growth for properties owned during comparable periods, excluding acquisitions or dispositions.
Cap rates: NOI divided by property value; used to value properties and compare yields.
Leverage ratios: Debt-to-assets, debt-to-EBITDA, loan-to-value (LTV); measure balance-sheet risk.
Interest coverage: EBITDA or cash flow divided by interest expense; signals ability to service debt.

Benefits of REIT Stocks

Income generation: REITs often provide higher dividend yields because of payout requirements.
Diversification and inflation hedge: Rents can escalate with inflation and real estate returns can decorrelate from other asset classes.
Accessibility and liquidity: Public REITs trade like stocks, providing a liquid way to invest in property exposure without direct property ownership.

Risks and Drawbacks

Interest-rate sensitivity

REIT valuations are sensitive to changes in interest rates. Rising rates increase borrowing costs for REITs, pressuring net income and valuation multiples. Higher yields on bonds can also make REIT dividend yields less attractive relative to fixed income.

Real estate cycle and sector concentration

REIT performance depends on property-level fundamentals: vacancy rates, lease expirations, tenant credit quality, and local market dynamics. Sector concentration (e.g., being heavy in retail or office) increases sensitivity to industry-specific downturns.

Leverage and financing risk

REITs often use debt to acquire and develop properties. High leverage raises refinancing risk and magnifies earnings volatility during downturns.

Non-traded REIT-specific risks

Non-traded REITs can have limited liquidity, opaque valuations, and higher fees, all of which can reduce net returns and increase investor complexity.

Tax Considerations

REIT dividends are usually taxed differently from qualified dividends from corporations. In many jurisdictions, a portion or all of a REIT distribution may be treated as ordinary income, which is typically taxed at higher rates than qualified dividends. REITs also provide specific tax reporting to investors. For taxable accounts, investors should be aware of ordinary-income treatment and potential state tax differences; many investors prefer holding REITs in tax-advantaged accounts to defer or reduce immediate tax impacts.

When explaining what are reits stocks to new investors, note that tax treatment varies by country and investor, so consult a tax professional for personalized guidance. This article provides U.S.-centric tax context where applicable.

Regulation and Governance

Public REITs are subject to SEC reporting requirements, including periodic financial statements, proxy disclosures and regulatory filings that provide transparency into operations and governance. Corporate governance is a key consideration: look for an experienced board, transparent related-party transaction policies, and clear disclosure on external manager arrangements, which can create potential conflicts of interest in some structures.

REIT Market Structure and Benchmarks

Major REIT indices track the performance of publicly traded REITs and serve as benchmarks for ETFs and funds. Indexes from industry groups and major index providers provide sector breakdowns and performance histories that investors use to gauge the REIT market. REIT ETFs and benchmarked funds offer passive exposure to these indices, simplifying diversified allocation to the sector.

How to Analyze and Choose REIT Stocks

Checklist and analytical approach

When evaluating REIT stocks, consider the following:

Property portfolio quality: Location, lease terms, tenant credit, and property age/condition.
Geographic and sector diversification: Concentration can amplify risk.
Balance sheet strength: Debt maturities, fixed vs. floating rate debt, covenants, and liquidity.
FFO/AFFO trends: Look for stable or growing funds from operations and reasonable payout ratios.
Dividend sustainability: Compare dividends to AFFO and assess future capital needs.
Management track record: Leasing execution, capital allocation, and shareholder alignment.
NAV comparisons: Is the stock trading at a discount or premium to estimated NAV?

Scenario analysis

Stress-test assumptions for occupancy, rent growth, interest rates and refinancing costs. For example, model the impact of a 1-2% increase in vacancy or a 100-200 basis-point rise in borrowing costs on AFFO and dividend coverage. Scenario analysis helps assess downside resilience and dividend risk.

Performance and Historical Returns

Historically, listed REITs have delivered returns comprised of dividends plus capital appreciation. Over long horizons, REITs can perform similarly to broad equities but with different return composition—often higher income and potentially lower or different cyclicality. Performance drivers include property market fundamentals, leasing activity, supply-demand balance, interest rates and capital market sentiment.

Investors should evaluate REIT returns against benchmarks and consider whether the income profile and sector exposures align with their portfolio goals.

Common Investment Strategies Involving REITs

Income-focused strategies: Investors seeking yield may overweight REITs for dividend income and use dividend reinvestment to compound returns.
Total-return strategies: Combine high-yield REITs with growth-oriented REITs (e.g., development-focused or data center REITs) to balance income and appreciation potential.
Tactical/sector rotation: Shift allocations across REIT sectors based on macro conditions (e.g., favor industrial/logistics during e-commerce expansion or data centers during cloud growth).

FAQs

Are REITs stocks?

Yes. When people ask what are reits stocks, they typically mean publicly traded REITs: companies listed on stock exchanges that operate real-estate businesses or hold mortgage assets. These companies issue shares that trade like ordinary stocks, providing investors with liquidity and transparency.

How are REIT dividends taxed?

REIT dividends are often taxed as ordinary income rather than qualified dividends for U.S. federal tax purposes, although portions can be return of capital or capital gain depending on the distribution composition. Tax treatment varies by investor residency and account type; investors often hold REITs in tax-advantaged accounts to reduce current tax burdens.

What is FFO?

FFO (Funds From Operations) is a REIT-specific performance measure that adjusts GAAP net income by adding back real-estate depreciation and excluding gains or losses from property sales. AFFO further adjusts for recurring capital expenditures and other items to estimate distributable cash flow.

Public vs. non-traded REIT—what’s the difference?

Publicly traded REITs list shares on exchanges and offer daily liquidity; non-traded REITs are registered but not exchange-listed, which limits liquidity and typically involves higher fees and less transparent pricing. Private REITs are unregistered and usually limited to accredited investors.

How can I buy REIT stocks?

Buy publicly traded REITs through a brokerage account or buy diversified exposure via REIT ETFs and mutual funds. For tokenized or blockchain-based real-estate products, platforms such as the Bitget exchange (and custody via Bitget Wallet) offer crypto-native ways to access tokenized property exposures—confirm product structure and regulatory status before investing.

References and External Resources

As of Jan 12, 2026, according to Nareit, listed U.S. REIT market capitalization remained a major segment of public markets, reflecting investor interest in income-generating real estate. For authoritative background reading and official guidance, refer to industry groups and regulatory pages such as the SEC's investor guides and Nareit's educational materials. Industry research, index providers and major brokerage education centers also publish REIT-specific materials for deeper study. (Dates and source references above are provided to ensure timely context.)

Practical Next Steps — How to Apply This Knowledge

If you are exploring what are reits stocks and considering adding REIT exposure to your portfolio:

Clarify your objective: income, diversification or total return.
Choose the vehicle: individual REITs for targeted exposure, ETFs for diversification, or non-traded/private options for specialized strategies (understanding liquidity differences).
Perform financial analysis: review FFO/AFFO, NAV estimates, balance-sheet metrics and occupancy trends.
Consider tax implications and account type for holding REITs.
Use appropriate execution platforms: for traditional REIT stocks and ETFs, use a regulated brokerage account; for tokenized real-estate or crypto-anchored products, consider Bitget exchange and Bitget Wallet for custody and trading where supported.

Remember: this guide describes structure and metrics for understanding what are reits stocks, not investment advice. Evaluate each opportunity carefully and consult licensed professionals for personal tax or investment decisions.

Final Notes and Call to Action

Understanding what are reits stocks gives investors a practical way to access real estate income and diversification through public markets. If you want to explore liquid REIT products or tokenized real-estate offerings, consider researching instruments available on reputable platforms and using secure custody options like Bitget Wallet where applicable. Explore Bitget to discover crypto-native real-estate tokens, ETFs, and custody solutions that may complement your broader portfolio.

For more in-depth guides and tools on REIT metrics, sector analysis, and model templates, explore Bitget’s educational resources and platform features to support your research and secure trading activities.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.