REIT SECTORS January, 2021 by REIT Institute
There are two main types of REITs: equity REITs and mortgage REITs. Equity REITs own and operate income-producing real estate and typically earn income through rents. Mortgage REITs lend money directly to real estate owners and operators, or indirectly through the purchase of mortgages or mortgage-backed securities, and they earn income from the interest on these investments. Based on the property type each equity REIT owns, we can further categorize it by its sector. Most REITs specialize in a single property type, while some manage portfolios that include multiple types of properties 1.
Office REITs own and manage income-producing office real estate. Office REITs focus on generating a steady income stream for investors through the process of leasing office properties to commercial tenants. Some office REITs concentrate on specific markets, such as central business districts, suburban areas, or geographical regions. It is not uncommon that office REITs will focus on specific tenants, ranging in company size and industry identification. Some industries can include financial institutions, technology, and government agencies, among others.
Industrial REITs focus on owning and managing industrial buildings and renting space in those properties to commercial tenants. While industrial REITs have historically targeted specific property types such as distribution centers and warehouses, the most recent rise in logistics services has turned the focus toward fulfillment centers. Industrial REITs play an important role in e-commerce and are helping to better facilitate the growing demand for rapid delivery.
Retail REITs own and manage retail properties in key business areas and upmarket regions, leasing space to various sizes and types of retailers. Retail REITs focus on large regional malls, factory outlets, grocery-anchored shopping centers, and power centers that feature big box retailers.
Residential REITs own and manage a wide range of residential product types. Some residential REITs specialize in apartment buildings, student housing, manufactured homes, and single-family homes, while others may participate in more than one. Within those market segments, some residential REITs also focus on specific geographical markets or classes of properties such as upscale buildings in urban neighborhoods.
Lodging REITs work by owning several lodging property types such as hotels, motels, and luxury resorts. A key determinant to the success of these property types come from revenue per available room (RevPAR). These 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.
Diversified REITs focus on investment in a blend of different property types and collect rent from tenants. These REITs do not specialize in one type of commercial property, rather they might own and manage a portfolio comprised of both office and residential real estate.
Specialty REITs own and manage a range of unique property types that do not fit the traditional real estate mold. Examples of REITs within this sector might concentrate on net lease, timberlands, infrastructure, data centers, or self-storage properties. These REITs are selective in their investment strategies and in generating income for their shareholders.
Sources: https://www.reit.com/what-reit/reit-sectors https://corporatefinanceinstitute.com/resources/knowledge/finance/office-reits/ https://corporatefinanceinstitute.com/resources/knowledge/finance/industrial-reits/ https://corporatefinanceinstitute.com/resources/knowledge/finance/retail-reits/ https://www.spglobal.com/spdji/en/education/article/understanding-reit-sectors