DIV 203Lesson 2 of 90 of 9
The Different Kinds of REITs
Apartments, warehouses, cell towers, data centers: what each kind of REIT owns and what can go wrong.
What you’ll learn
- The main property types REITs own and how each earns its rent
- The particular risk that comes with each type
- Why yields differ so much between, say, data centers and offices
- How to spread REIT holdings across property types
“Real estate” covers wildly different businesses. A landlord renting apartments in Texas, one leasing warehouses to Amazon and one owning cell towers have almost nothing in common except that they collect rent. Each property type has its own economics, its own growth story and its own way of going wrong.
The map of REIT land
| Property type | What they own | Example | Main risk |
|---|---|---|---|
| Residential | Apartments, single-family rentals | MAA | New supply, local job markets |
| Industrial | Warehouses and logistics centers | Prologis | Overbuilding after a boom |
| Net lease retail | Stores leased long term to single tenants | Realty Income | Tenant bankruptcies, slow growth |
| Shopping centers and malls | Grocery anchored centers, premium malls | Federal Realty, Simon | Online shopping, weak anchor stores |
| Office | Office towers and campuses | Several city landlords | Remote work, refinancing costs |
| Healthcare | Senior housing, medical offices, hospitals | Welltower | Operator troubles, government reimbursement |
| Data centers | Buildings full of servers | Equinix | Heavy spending, technology shifts |
| Cell towers | Towers leased to wireless carriers | American Tower | Carrier mergers, interest rates |
| Self-storage | Storage units | Public Storage | Oversupply, slower moving activity |
| Experiential | Casinos, entertainment venues | VICI | Tenant concentration |
| Mortgage | Loans and mortgage bonds | AGNC | Leverage and interest rate swings |
The steady payers
Net lease REITs are the closest thing to a bond in property form: long leases, tenants covering most costs, and rent that rises a little each year. Their dividends tend to be dependable and slow growing. Grocery anchored shopping centers have also proved resilient, because people still buy groceries in person and those visits bring traffic to the smaller shops around them.
The growth landlords
Industrial, data center and tower REITs ride long-term trends: online shopping needs warehouses, cloud computing and AI need data centers, and phones need towers. Investors pay up for that growth, so yields are often 2% to 4%. These REITs behave more like dividend growth stocks than income stocks.
The cyclical and the challenged
Apartments and self-storage reprice often, so rent can jump in good years and stall when too many new buildings open at once. Hotels re-price every night and are among the most economically sensitive property types of all. Office REITs have faced a structural problem since 2020: with many people working from home part of the week, demand for space fell, vacancies rose and several office landlords cut their dividends.
Healthcare: two different businesses
Some healthcare REITs simply lease buildings to hospitals or doctors on long leases. Others, especially in senior housing, share in the operating profits of the facilities, which means more upside when occupancy is strong and more pain when it isn’t, as the pandemic showed.
Across the types, live
| Ticker | Name | Yield | 1Y total return | 5Y total return |
|---|---|---|---|---|
| O | Realty Income Corporation | 6.07% | -6.1% | +8.6% |
| FRT | Federal Realty Investment Trust | 4.38% | +11.2% | +9.1% |
| SPG | Simon Property Group, Inc. | 4.47% | +13.7% | +100.0% |
| PLD | Prologis, Inc. | 3.34% | +12.9% | +17.4% |
| MAA | Mid-America Apartment Communities, Inc. | 5.25% | -10.8% | -25.9% |
| ESS | Essex Property Trust, Inc. | 3.81% | +6.9% | +0.4% |
| WELL | Welltower Inc. | 1.52% | +29.9% | +209.1% |
| EQIX | Equinix, Inc. | 2.02% | +34.2% | +48.7% |
| AMT | American Tower Corporation | 4.41% | -11.2% | -27.8% |
| PSA | Public Storage | 4.26% | -0.1% | +19.2% |
| VICI | VICI Properties Inc. | 8.17% | -26.1% | +3.1% |
Check your understanding
4 questionsWhich REIT type has been hit hardest by the shift to remote and hybrid work?
Why do many data center and cell tower REITs have relatively low yields?
What's a typical feature of net lease retail REITs like Realty Income?
A portfolio's REITs are all office and shopping mall landlords. What's the main problem?
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Put it into practice
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