7981 / What types of REITs are commonly formed?

REITs can be broken down into three basic classes: equity, mortgage and hybrid.

An equity REIT will actually acquire and take ownership of real property. Most equity REITs buy and hold properties for their net rental income. Others seek profits through appreciation in property values. These often try to add value through increasing occupancy levels or by making physical improvements to the property. Equity REITs can be sub-classified by the type of real estate in which they invest. For example, investments may be confined to (or predominantly focused on) office buildings, apartments, shopping centers, warehouses, or medical care facilities, etc. Some equity REITs may diversify their holdings among several different types of real estate.

Mortgage REITs do not actually own real estate, but rather, they hold mortgages on income-producing commercial properties. Mortgage REITs generally provide a higher current yield than equity REITS, but they lack the opportunity for capital appreciation through increases in property values. Instead, their market valuations will be affected by fluctuations in the prevailing market interest rates.

Hybrid REITs are simply REITs that invest in both direct property ownership and in mortgages.