by James Copenhaver, Director of Investment Management,
Wealth Enhancement Group

A real estate investment trust, or REIT, is a company that owns and, in most cases, operates income-producing real estate. Some REITs finance real estate. To be a REIT, a company must distribute at least 90 percent of its taxable income to shareholders annually in the form of dividends.

There are approximately 150 publicly traded REITs in the U.S. today, with a combined equity market capitalization of more than $300 billion. The shares of these companies are traded on major stock exchanges, which set them apart from traditional real estate. Other REITs may be publicly registered but non-exchange-traded or private companies.

REITs are classified in the following categories:

• Equity REITs own and operate income-producing real estate.
• Mortgage REITs lend money directly to real estate owners and their operators or indirectly through acquisition of loans or mortgage-backed securities.
• Hybrid REITs are companies that both own properties and make loans to owners and operators.

REITs come in one of three forms:

• Publicly traded: a REIT that has filed with the Securities and Exchange Commission and whose shares trade on national stock exchanges.
• Non-exchange-traded REITs: similar to public but not traded on a stock exchange.
• Private REITs: not registered with the SEC and not traded on a stock exchange.

REITs can be purchased as closed-end funds, mutual funds, exchange-traded funds (ETFs), equities and non-traded.

The REIT industry offers investors many alternatives across a broad range of specific real estate property sectors, including the following, as of Dec. 31, 2008.