Modeled after mutual funds, REITs historically have provided investors of all types regular income streams, diversification and long-term capital appreciation. Investors can purchase stock in equity REITs and mortgage REITs. Equity REITs own properties in a variety of real estate sectors, such as retail, office and residential.

How do REITs Work?

What's a REIT?

A REIT (pronounced REET), 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.

An estimated 145 million Americans own REITs through their retirement savings and other investment funds.
145
million
Stock exchange-listed REITs paid out approximately $63 billion in dividends during 2019.
$63
billion
U.S. REITs have an equity market capitalization of more than $1 trillion.
$1
trillion

Why Invest?

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. These are the characteristics of REIT-based real estate investment.

Liquidity

REITs have historically provided:

  • Ability to buy/sell like other stocks, mutual funds and ETFs.
  • Opportunities for tactical asset allocation.
  • Easy portfolio rebalancing.
Diversification

REITs have historically provided:

  • Low correlation with other stocks and bonds.
  • Higher risk-adjusted returns.
  • An investment in real, tangible assets.
Transparency

REITs have historically provided:

  • Corporate governance aligned with shareholders interests.
  • Audited financial reports.
Dividends

REITs have historically provided:

  • Dividends & wealth accumulation.
  • Regular income from rents.
  • Reduced portfolio volatility.
Performance

REITs have historically provided:

  • Total returns above the S&P 500 over the past 25 years.
  • Higher returns than corporate bonds.

 

What are the different types of REITs?

Most REITs are traded on major stock exchanges, but there are also public non-listed and private REITs. The two main types of REITs are equity REITs and mortgage REITs commonly known as mREITs.

  • Equity REITs – a company that owns or operates income-producing real estate.
  • Mortgage REITs – mREITs provide financing for income-producing real estate by purchasing or originating mortgages and mortgage-backed securities and earning income from the interest on these investments.
  • Public Non-listed REITs – PNLRs are registered with the SEC but do not trade on national stock exchanges.
  • Private REITs – Private REITs are offerings that are exempt from SEC registration and whose shares do not trade on national stock exchanges.

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.

Retail

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. Net lease REITs own freestanding properties and structure their leases so that tenants pay both rent and the majority of operating expenses for a property, including taxes, utilities and maintenance.

Residential

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.

Office

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.

Health Care

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.

Diversified

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.

Lodging/Resorts

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.

Self-storage

Self-storage REITs own and manage storage facilities and collect rent from customers. Self-storage REITs rent space to both individuals and businesses.

Timberlands

Timberland REITs own and manage various types of timberland real estate. Timberland REITs specialize in harvesting and selling timber.

Industrial

ndustrial 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 infrastructure and are helping to meet the rapid delivery demand.

Infrastructure

Infrastructure 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.

Data Centers

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.

Specialty

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, casinos, farmland and outdoor advertising sites.

Mortgage

Mortgage REITs provide financing for real estate by purchasing or originating mortgages and mortgage-backed securities (MBS) and earning income from the interest on these investments.

What are some Notable REIT-Owned Properties?

Shaping Communities: Federal Realty’s Assembly Row

Assembly Row

Just three miles away from Boston's financial district, Federal Realty Investment Trust's Assembly Row in Somerville, Massachusetts, sits on land once occupied by brownfields and decaying industrial buildings. The mixed-use development, which includes an assortment of retail, dining, entertainment, office and residential spaces, is credited with helping to transform the local economy. Federal Realty's commitment to the project included significant investment in environmental remediation and new infrastructure to serve the site.

How to Invest?

Individuals can invest in REITs in a variety of different ways, including purchasing shares of publicly traded REIT stocks, mutual funds and exchange-traded funds.

Individuals can invest in REITs in a variety of different ways, including purchasing shares of publicly traded REIT stocks, mutual funds and exchange-traded funds.

An individual may buy shares in a REIT, which is listed on major stock exchanges, just like any other public stock. Investors may also purchase shares in a REIT mutual fund or exchange-traded fund (ETF). 

A broker, investment advisor or financial planner can help analyze an investor’s financial objectives and recommend appropriate REIT investments.

Investors also have the ability to invest in public non-listed REITs and private REITs. 

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