The structure exists to let investors hold property without the entity being taxed twice. In exchange for the distribution requirement and asset and income tests, the REIT pays little or no corporate tax and shareholders are taxed on what they receive.
The mandatory payout has a consequence: a REIT retains little cash, so growth requires issuing equity or debt. That makes REITs unusually sensitive to capital market conditions and to interest rates, which affect both financing cost and the discount rate applied to rents.
Distributions are often taxed less favourably than qualified dividends, since much of the income is ordinary. Holding REITs inside a tax-advantaged-account is common for this reason. See equity-reit and mortgage-reit.
Related: equity-reit, mortgage-reit, non-traded-reit, funds-from-operations, distribution-yield, tax-advantaged-account