A Real Estate Investment Trust (REIT) is a body trust holds and operates income-generating real estate assets. REITs own various types of commercial real estate, ranging from office and apartment complexes to warehouses, hospitals, lodges, motels to shopping malls. REITs provide investors with a liquid way to invest in real estate which is otherwise illiquid.
In the developed markets, you will find REITs based on the sector they operate in. These have investments in Offices, Industrial spaces, Retail, Hotels, Residential complexes, hospitals, data center, etc.
The REIT market is close to $2 Trillion worldwide with a majority of the REITs based in the US.
Structure of a REIT
REIT Management Company- It is the core to the REIT and acts as an agent to collect funds from prospective investors and utilize them on purchasing properties (in case of Equity), or Mortgage Securities (in case of Mortgage). It handles all the legalities such as Tax filings, licenses, environmental clearances, Audits, etc
Property Management Company - It invests the available funds in resourceful properties or securities and manages them including maintenance, repairs, and recovery to suit the projects for long-term use
Unit Holders - They are the investors in the REIT and hold unit shares amounting to a certain value. No unit holder can hold more than a certain amount of unit shares (usually not crossing 25%). They are given rights such as yearly reports and other information seeking services.
Trustees - Trustees are a group of investors elected from the list of Unit Holders and members of the REIT Management Company who look over operations for the best interest of the Unit Holders.
Performance
Between 2009 and 2019, the Dow Jones All Equity REIT Index delivered a CAGR of 16.7% while the MSCI US REIT index gave a return of 17.95% annually.
Risks
Just like other investment (Equity/Mutual Funds) products, REITs carry risks of market movements and management practices.
While the returns from 2009 to 2019 have been overwhelming, the REIT market saw a 50% drop in market capitalization during the 2008-09 Housing Bubble and Credit Crisis
You can find useful information on how REITs work and data from the US markets on REITs on reit.com