REIT (Real Estate Investment Trust)
Definition
A REIT is a company that owns (or finances) income-producing real estate and elects a special US tax status: it pays no federal corporate income tax on earnings it distributes, provided it meets strict tests — most famously distributing at least 90% of taxable income as dividends, plus asset tests (at least 75% of assets in real estate, cash, and government securities) and income tests (at least 75% of gross income from real-estate sources), along with ownership-diversification rules.
The structure eliminates double taxation on distributed income; the trade-off is that mandatory payouts leave little retained cash, so REITs fund growth by repeatedly raising equity and debt. Equity REITs own properties across sectors (apartments, industrial, data centers, towers, offices, retail); mortgage REITs instead hold real-estate debt and earn a spread.
REITs are analyzed with sector-specific tools: FFO/AFFO instead of EPS, NAV based on capping NOI, and same-store growth metrics.
Why interviewers ask
Real estate group interviews start here: 'what is a REIT and why does the structure exist?' The 90% distribution requirement, the no-corporate-tax trade, and the consequence that REITs constantly tap capital markets (great for bankers) are the expected beats. It also motivates why REIT valuation uses FFO and NAV rather than EPS and standard DCF.
Related terms
Interviews don't test definitions — they test recall under pressure.
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