REIT stocks

Are all REITs publicly traded?

Most REIT shares trade on major stock exchanges across the world, including the London Stock Exchange (LSE). You can find publicly traded REITs on the stock market, where individual investors can buy, sell and trade shares, and these transactions are usually regulated by the Financial Conduct Authority (FCA). Read more about stock market hours.

On the other hand, non-traded REITs are registered with the FCA but do not trade on a national exchange. This means that there is less traffic and liquidity, but some traders prefer to trade non-exchange traded REITs as there are not as many resulting market fluctuations, and share prices tend to be less volatile. This is also applicable for private REITs, although these are not regulated by the FCA and are exclusive to institutional investors.

Equity REITs

This is the most common type of REIT. These real estate investment trusts generate income through properties that they own in the long-term and collect rent for. This can include offices, retail spaces and shopping centres, as well as apartment complexes that are leased to tenants. They pay a large amount of their income in the form of dividends to shareholders.

Mortgage REITs

Mortgage REITs or mREITs do not directly own real estate, but instead, they finance real estate projects and earn income from interest on these investments. This happens through purchasing mortgages or mortgage-backed securities and usually applies to residential REITs.

In general, the two most common types of real estate investment trusts are equity REITs and mortgage REITs. However, there a number of additional REIT sectors that fall into sub-categories, which include the following:

• Office REITs: skyscrapers, biotech firms, office parks, government buildings
• Industrial REITs: warehouses, distribution centres, e-commerce properties
• Retail REITs: shopping centres, power centres, grocery stores
• Infrastructure REITs: telecommunication towers, energy pipelines, wireless infrastructure
• Residential REITs: student housing, apartment complexes, family homes
• Healthcare REITs: hospitals, medical office buildings, doctors’ offices, care homes

REITs spend the majority of their income in the form of dividend payouts to investors, and in return, they are not required to pay income tax on their properties. This is much higher than stock dividends, and can last for many years if the company is performing well. This is why many investors choose to trade REITs instead of real estate stocks. REITs also prove to be consistent in terms of income, market performance, liquidity within the stock market and can be a good way to diversify your portfolio. However, with all benefits of a financial instrument come risks, as explained below.

Are REITs safer than stocks?

One concern for investors when trading stocks is the issue of interest rates. When interest rates rise at a point of economic growth, this often causes share prices to fall and earnings to drop also for the business. This is not a positive move for traders who have a large stock portfolio, as he may need to short sell the stocks in order to avoid future loss. However, REITs react in the opposite way to this. REIT prices tend to rise along with interest rates, as economic growth helps to boost the value and subsequent earnings of real estate investment trusts. Therefore, REITs are often seen as safer in terms of inflation and interest rates.

However, there are also risks involved when trading REITs that you need to be aware of. Although the price of REITs generally rise with increasing interest rates, there is also the potential that they will be affected by times of uncertainty within the real estate market. For example, a national recession can cause the real estate sector to weaken in general. This means that the value of REITs and real estate stocks will decrease in a similar way.

It is perhaps safer to open positions for both real estate stocks and real estate investment trusts, with the aim of building a more diversified portfolio. In turn, this will help to offset the risk of one investment that is performing poorly with another.