A 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.
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 REITsData 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 REITsDiversified 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.
Health Care REITsHealth care REITs’ property types include senior living facilities, hospitals, medical office buildings, and skilled nursing facilities.
Industrial REITs own and manage industrial facilities, warehouses and e-commerce distribution.
Infrastructure REITsInfrastructure REITs’ property types include fiber cables, wireless infrastructure, telecommunications towers, and energy pipelines.
Lodging REITsLodging REITs own and manage hotels and resorts and service a wide spectrum of customers, from business travelers to vacationers.
Office REITsOffice REITs own and manage office real estate such as skyscrapers or office parks. Some office REITs focus on specific types of markets, such as central business districts or suburban areas.
Residential REITs include REITs that specialize in apartment buildings, student housing, manufactured homes, and single-family homes.
Retail REITsRetail 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 REITsSelf-storage REITs own and manage storage facilities and rent space to both individuals and businesses.
Specialty REITsSpecialty REITs own properties that don’t fit within the other REIT sectors. Examples of properties owned by specialty REITs include movie theaters, casinos, farmland, and outdoor advertising sites.
Timberland REITsTimberland REITs own and manage various types of timberland real estate. Timberland REITs specialize in harvesting and selling timber.