Go BackA REIT, or real estate investment trust, is a company that owns, operates or finances income-producing real estate. Modeled after mutual funds, REITs historically have provided investors of all types regular income streams, diversification and long-term capital appreciation.
REITs historically have delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can help reduce overall portfolio risk and increase returns.
Types of REITs
The two main types of REITs are equity REITs and mortgage REITs, commonly known as mREITs. Equity REITs generate income through the collection of rent on, and from sales of, the properties they own for the long-term. mREITs invest in mortgages or mortgage securities tied to commercial and/or residential properties. Two other types of REITs are Public non-listed REITs and Private REITs. Public non-listed REITs (PNLRs) are registered with the SEC but do not trade on national stock exchanges. Private REITs are real estate funds or companies that are exempt from SEC registration and whose shares do not trade on national stock exchanges. Private REITs generally can be sold only to institutional investors.
REIT Sectors
REITs invest in the majority of real estate property types, including offices, apartment buildings, warehouses, retail centers, medical facilities, data centers, cell towers, infrastructure and hotels. Most REITs focus on a particular property type, but some hold multiples types of properties in their portfolios.
Data Center REITs
Data center REITs own and manage facilities that customers use to safely store data. Data center REITs offer a range of products and services to help keep servers and data safe, including providing uninterruptable power supplies, air-cooled chillers and physical security.
Diversified REITs
Diversified REITs own and manage a mix of property types and collect rent from tenants. For example, diversified REITs might own portfolios made up of both office and industrial properties, making them ideal for investors looking to gain exposure to a variety of real estate asset types.
Gaming REITs
Gaming REITs concentrate on owning experiential real estate assets in the form of casino and entertainment properties, and leasing them through long-term, triple net lease structures.
Health Care REITs
Health care REITs own and manage a variety of health care-related real estate and collect rent from tenants. Health care REITs’ property types include senior living facilities, hospitals, medical office buildings and skilled nursing facilities.
Industrial REITs
Industrial REITs own and manage industrial facilities and rent space in those properties to tenants. Some industrial REITs focus on specific types of properties, such as warehouses and distribution centers. Industrial REITs play an important part in e-commerce and are helping to meet the rapid delivery demand.
Lodging REITs
Lodging REITs own and manage hotels and resorts and rent space in those properties to guests. Lodging REITs own different classes of hotels based on features such as the hotels’ level of service and amenities. Lodging REITs’ properties service a wide spectrum of customers, from business travelers to vacationers.
Office REITs
Office REITs own and manage office real estate and rent space in those properties to tenants. Those properties can range from skyscrapers to office parks. Some office REITs focus on specific types of markets, such as central business districts or suburban areas. Some emphasize specific classes of tenants, such as government agencies or biotech firms.
Residential REITs
Residential REITs own and manage various forms of residences and rent space in those properties to tenants. Residential REITs include REITs that specialize in apartment buildings, student housing, manufactured homes and single-family homes. Within those market segments, some residential REITs also focus on specific geographical markets or classes of properties.
Retail REITs
Retail REITs own and manage retail real estate and rent space in those properties to tenants. Retail REITs include REITs that focus on large regional malls, outlet centers, grocery-anchored shopping centers and power centers that feature big box retailers.
Self-storage REITs
Self-storage REITs own and manage storage facilities and collect rent from customers. Self-storage REITs rent space to both individuals and businesses.
Specialty REITs
Specialty REITs own and manage a unique mix of property types and collect rent from tenants. Specialty REITs own properties that don’t fit within the other REIT sectors. Examples of properties owned by specialty REITs include movie theaters, farmland and outdoor advertising sites.
Telecommunications REITs
Telecommunications REITs own and manage infrastructure real estate and collect rent from tenants that occupy that real estate. Infrastructure REITs’ property types include fiber cables, wireless infrastructure, telecommunications towers and energy pipelines.
Timberland REITs
Timberland REITs own and manage various types of timberland real estate. Timberland REITs specialize in harvesting and selling timber.