What are preferred shares in the context of REITs?

Preferred shares in the context of Real Estate Investment Trusts (REITs) represent a class of equity that has specific characteristics distinct from common shares. Primarily, preferred shares are designed to provide dividend payments that are prioritized over those of common shares. This means that holders of preferred shares receive dividends before common shareholders in a distribution, leading to a more stable and predictable income stream for investors.

Investing in preferred shares often attracts those looking for a regular income, as these shares typically offer fixed dividends, providing a level of security and predictability in returns, which can be particularly appealing in the real estate sector where income consistency is valued.

While preferred shares may not always come with voting rights as common shares do, their preferential treatment regarding dividend payments is a key feature. Generally, preferred shareholders do not have the same rights as common shareholders when it comes to corporate governance, but they do have a stronger claim on assets in the event of liquidation, positioning them more favorably compared to common shareholders in such scenarios, contrary to the idea involving higher risk of liquidation.