What is a REIT?

A real estate investment trust, or REIT, is a company whose business is owning property that earns rent — offices, warehouses, flats, shops. Buying its shares buys a slice of that rent. You never hold the keys to anything; you hold a claim on what the tenants pay, after the trust has covered its costs.

Where the money comes from

Rent is one of the oldest ways money is made: a tenant pays to use a building someone else owns. A REIT industrialises this. The trust collects rent across its properties, pays for upkeep, management and the interest on its own borrowing, and distributes much of what remains to shareholders. Purely hypothetical arithmetic: a trust collecting 100 a year in rent, spending 30 on upkeep and management and 20 on interest, has 50 left. A holder of one share in a hundred receives 0.50.

Two prices for the same buildings

A REIT trades like a share, so it has a share price — and that price moves with markets, sentiment and interest rates, even on days when the buildings have not changed at all. The buildings have a value; the shares have a price; the two are related but not chained together. The shares can trade above or below any sensible estimate of what the property is worth, sometimes for long stretches.

The wrapper does not change the contents

The same principle that governs an ETF applies here: a wrapper does not change what is inside it. A REIT full of half-empty offices is a claim on half-empty offices, however conveniently it trades. The convenience is real — property in share form can be bought and sold in seconds, in small amounts, without solicitors — but convenience is a feature of the wrapper, not evidence about the contents.

What can go wrong

Everything that can go wrong for a landlord can go wrong inside the trust. Tenants leave, and empty floors earn nothing while still needing heating and repairs. Buildings age and demand expensive maintenance. And most trusts borrow, so debt inside the trust magnifies results in both directions. Continue the hypothetical above: if rent falls from 100 to 80 while costs stay at 50, the distribution drops from 50 to 30. Rent fell 20 per cent; the payout fell 40 per cent. Fixed costs and fixed interest do the magnifying, quietly.

Distributions are also not promised. They depend on rent actually arriving; a trust whose tenants stop paying has less to hand on, whatever its own rules say.

What this is not

This article does not say whether property in share form suits anyone, how much of it belongs in any portfolio, or whether now is a sensible moment — those depend on circumstances no article knows. The legal rules that define a REIT, including what it must pay out and how its distributions are taxed, differ by country; they live with your regulator and tax authority, not here. All numbers above are hypothetical, chosen to make the arithmetic legible rather than to describe any market.