What Sectoral Equity REITs Are Available to Investors?
As we saw in the last part in this series, equity REITs dominate the REIT market. They account for almost 90% of the total market capitalization of all the REITs. Equity REITs are further divided into a number of specialized REITs.
Retail REITs own and operate retail properties like shopping centers and malls. They generate rent by leasing properties to retail tenants. Some retail REITs like Simon Property Group (SPG) also operate retail centers owned by third parties. They receive a management fee.
Office REITs own and operate office properties. They get rent by leasing the properties to office tenants. Office REITs lease offices for longer terms than other types of property—usually 7–10 years. Many office REITs like Boston Properties (BXP) also operate office buildings owned by third parties. They receive a management fee.
Residential REITs own and manage residential properties with more than four units, including apartments, manufactured homes, and student housing. They earn revenue by renting the properties to residential tenants. Like hotel REITs, residential REITs like Equity Residential (EQR) are also evaluated by the number of properties they own and the number of units they contain.
Industrial REITs own and manage industrial properties like warehouses and other buildings for logistics—packing, storage, distribution, and transport. They earn revenue by renting the properties to industrial tenants. The size of an industrial REIT like ProLogis (PLD) can be gauged from factors like the number of owned properties, the number of tenants they have, the number of locations they operate in, and the number of rentable square feet they own.
Healthcare REITs like Ventas (VTR) build, acquire, and lease properties like hospitals, medical buildings, nursing homes, and assisted-living facilities. They earn revenue by renting out the properties to tenants.
Self-storage REITs like Public Storage (PSA) own and manage storage spaces like rooms, lockers, containers, and outdoor space. They earn income by renting out the properties to tenants for a short period of time—around a month. Tenants are mostly corporate customers, although individuals can also use the services.
Hotel and Resort REITs
As the name suggests, Hotel and Resort REITs own and manage hotel, resort, lodging, conference center, suite, and airport properties. They earn income by renting out properties to tenants. Instead of having complete ownership of the property, REITs can also form a joint venture interest in hotels. Hotel REITs like Host Hotels & Resorts (HST) are evaluated by the number of properties and the number of rooms they own.
Data Center REITs
Data center REITs own, operate, and develop properties that house data centers and other related infrastructure. Typically, data centers include infrastructure for networking, data storage, and communications technology.
Investors looking for diversification in the REIT sector can get exposure to REIT ETFs like the Vanguard REIT ETF (VNQ), the iShares U.S. Real Estate ETF (IYR), and the iShares Cohen & Steers REIT ETF (ICF).