For many investors, real estate is a desirable asset class.
This is because it provides a number of advantages, including diversification (because to lower correlation with stocks), monthly income, and inflation protection. The latter is referred to as “inflation hedging,” and it arises from the fact that real estate tends to gain during periods of rising prices.
Affordability is, of course, a key hurdle to most real estate investments. Property markets all across the world have entered a state of bubble, making it extremely difficult for newcomers to get a foot in the door.
There are, thankfully, easier ways to obtain awareness. One of these is investing in a real estate investment trust (REIT), which is a form of publicly traded firm that owns and operates income-producing real estate.
What Is a Real Estate Investment Trust (REIT)?
A corporation must meet several conditions to be classified as a REIT in the United States:
- At least 75% of your assets should be in real estate, cash, or US Treasury bonds.
- Rents, mortgage interest, or real estate sales must account for at least 75% of gross income.
- Dividends to shareholders must account for at least 90% of taxable income.
- Assume the status of a taxable corporation.
- A board of directors or trustees will oversee the operation.
- After one year of operation, you should have at least 100 shareholders.
- Have no more than five people owning more than half of the company’s stock.
Purchasing shares in a REIT is identical to buying stock in any other publicly traded firm.
Exchange-traded funds (ETFs) and mutual funds that carry a REIT basket are also available. Finally, some REITs are private, which means they aren’t listed on public stock exchanges.
The Top 10 REITs by Market Cap are listed below :
| REIT | Market Cap | Dividend Yield | Property Type |
|---|---|---|---|
| Prologis (NYSE: PLD) | $116.4B | 2.03% | Industrial |
| American Tower (NYSE: AMT) | $109.8B | 2.38% | Communications |
| Crown Castle (NYSE: CCI | $76.8B | 3.35% | Communications |
| Public Storage (NYSE: PSA) | $65.9B | 2.14% | Self-storage |
| Equinix (NYSE: EQIX) | $64.4B | 1.74% | Data centers |
| Simon Property Group (NYSE: SPG) | $48.9B | 5.07% | Malls |
| Welltower (NYSE: WELL) | $43.0B | 2.58% | Healthcare |
| Digital Realty (NYSE: DLR) | $40.1B | 3.55% | Data centers |
| Realty Income (NYSE: O) | $40.1B | 4.44% | Commercial |
| AvalonBay Communities (NYSE: AVB) | $34.6B | 2.62% | Residential |
REITs target distinct market sectors, as seen above. Before making an investment, it’s crucial to understand the differences between them.
Prologis, for example, maintains the world’s largest logistics real estate portfolio. Warehouses, distribution centers, and other supply chain facilities can be found all over the world. It’s logical to believe that this REIT will profit from further ecommerce growth—more on that later.
Realty Income, on the other hand, has over 11,100 commercial real estate holdings across the United States and Europe. It leases these properties to big retailers such as Walgreens and 7-Eleven, which account for 8.1 percent of the REIT’s yearly revenue.
More Than Just Building
Although cell towers and data centers may not appear to be “real estate,” they are both important components of contemporary infrastructure that require space.
Wireless communications assets in the United States and abroad are owned by REITs such as American Tower and Crown Castle. Increased adoption of 5G networks and the Internet of Things is anticipated to help them (IoT).
Equinix and Digital Realty, on the other hand, are focused on data centers, a rapidly growing market that is benefiting from digitization. Both of these REITs have partnerships with large tech companies like Amazon and Google.
TRends to watch
Overarching trends discovered around the world can have a big impact on real estate demand. One of these factors is population increase and urbanization, which has driven up housing costs in many cities around the world.
There’s also the growing popularity of ecommerce, which has resulted in a surge in warehouse space demand. Amazon’s tremendous growth during the COVID-19 pandemic, during which the business doubled the number of its warehousing facilities, best exemplifies this.
Ecommerce accounts for only 19.6% of total retail sales globally. Industrial real estate prices could see strong, long-term increase if that figure continues to rise.
