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 .
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.
REITs are classified as Healthcare REITs if the company generates income by owning, operating, or financing healthcare-related property, such as, nursing homes, senior living facilities, hospitals, medical office buildings, and healthcare laboratories. Similarly to other REIT types, healthcare REITs pool capital from investors and distribute dividends from their underlying real estate holdings. Demographic trend of the aging population is one of the key tailwinds of healthcare REITs outlook as it drives demand for services. Healthcare REITs are defensive in nature compared to most other types of REITs. They tend to focus on a single property types and properties are usually signed on a long-term basis, such as 10 years or more.
The wave of electronic communication and shopping has driven technology to the forefront of investing. Investment fund sponsors in the real estate industry, and the REIT industry in particular, launched new REITs with a focus on Cell Towers and Data Centers. Both sectors have been around for many years but REITs in these sectors have outpaced the average due to the unparalleled increase in technological traffic and data storage not to mention the constantly growing desire for internet security. Moreover, industrial REITs came into their own as consumers wanted faster and faster delivery times for their goods and to accomplish this, the goods needed to be located near consumers. This demand evolved “industrial” into “logistics” and the top-tier industrial REITs are delivering new buildings with a robust technological backbone.
At the start of the Modern REIT Era, most newcomers to the REIT industry coalesced portfolios of one of these primary sectors: apartments, office buildings, industrial assets, hotels and open air (aka “strip”) shopping centers. Many sector sponsors had their own unique elements such as being located in urban areas (or “infill”), suburban markets, high-rise or low rise and more. These are the “Old Economy” sectors that provided the foundation, the bedrock, of the REIT industry. As time passed, new REIT IPOs sprang up in these OE sectors and today, each is a robust and active market unto themselves.
To achieve our goal of delivering the full scope of REIT study, we will address the major international REIT markets outside the US. We will also examine the handful of US REITs that have successfully spawned platforms in other countries and how they have fared. We will explore the details about the structures of international REITs, how their markets operate and how they are faring in the face of COVID-19. We will also look how international REITs address Environmental, Social and Governance matters compared to their US counterparts. The answer may surprise you.