UK Accounting Glossary
An equity REIT is a company which owns a portfolio of income-producing real estate. REIT is an abbreviation of Real Estate Investment Trust. An equity REIT is one type of REIT; there are also mortgage REITs which own mortgages secured by properties. Congress passed legislation in the 1960s that helped create the modern equity REIT. Their goal was to enable retail investors to participate in the benefits of owning income-producing real estate. An equity REIT is required to distribute 90% of its taxable income to shareholders as cash dividends. However, an equity REIT is not required to pay corporate income tax. Compared to other investments, equity REIT stocks generally offer higher dividend yields. Studies by research firm Ibbotson & Associates show that equity REIT stocks have a relatively low correlation with other stocks and bonds. As a result, adding equity REIT stocks to a portfolio is an effective tool for improving portfolio diversification.
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This glossary post was last updated: 9th February 2020.