A real estate investment trust (REIT) is a company that owns and typically operates or finances income-producing real estate or related assets. As with mutual funds, a REIT pools funds from many investors, but it invests solely in real estate and related assets, such as office buildings, shopping malls, apartments, hotels, resorts, self-storage facilities, warehouses, and mortgages or loans. Shares of REITs are traded on a stock exchange, so REITs make it possible for individuals to invest and earn dividends from income-producing real estate without buying and managing the properties themselves.
In this guide, we explain the REIT industry and how you can invest in REIT stocks. We also offer our top 10 best REIT stocks to buy.
Where Can I Buy REIT shares?
You can buy shares of different REITs from any major stock exchange through a brokerage or trading platform. However, it can be difficult to choose the best brokers from the many options available in the market. So, we’ve shortlisted some of the best brokers below. These brokers have been selected based on trading commissions, regulatory status, and other unique features.
Overview of the REIT Companies
Real Estate Investment Trusts (REITs) were established by the United States Congress to allow individuals to invest in real estate without actually owning the physical property. Since being established in 1960, REITs have grown from simple property investments focused on housing and apartments to specialised REITs that cater to non-traditional real estate assets like cell towers and data centres. About 87 million Americans are believed to own REITs through their retirement savings and other investment funds.
In 2019 the REIT industry had a market capitalisation of $1.3trillion. It is segmented into three categories: Equity REITs, Mortgage REITs, and Hybrid REITs. Though REITs share common investment attributes, the industry includes a diverse range of players. Property types owned by REITs respond to supply and demand metrics, including broader macroeconomic factors, such as interest rates, inflation, and the price of commodities like timber.
The REIT industry was badly affected by the coronavirus pandemic, as commercial real estate prices, rental spaces, storage houses, and others slumped due to reduced economic activity. However, the availability of vaccines and the opening of the economy have caused the real estate sector to pick up.
What Are the Trading Hours for REIT Shares?
As with stocks and ETFs, REIT shares are publicly traded on major securities exchanges and can be purchased via regular brokers. The trading hours for the NYSE and Nasdaq are between 9.30am and 4pm New York Time. Some brokers may allow an extra trading window in the form of pre-market and post-market hours but most shares traded under these special hours suffer from liquidity problems so it is better to trade during normal working hours.
How to Trade and Invest in REIT shares?
Open a Trading Account
You need a brokerage account or investment account through which you can buy/sell the shares of publicly traded companies and other financial assets, including REITs. You will need to provide your full name, address, and email to open an account, and you’ll have to complete the “know your customer” (KYC) procedure by providing proof of identity and proof of residence.
Choose REIT Shares
About 225 REIT stocks are traded publicly, so choosing an appropriate REIT requires in-depth research. Look for REITs that purchase a diverse range of properties to hedge your portfolio against volatility and market cycles. Compare sectors, historical data, price, beta, and analysts’ ratings before making a decision.
Place Your Trade
When you’ve chosen the REIT stock to trade, place an order through your broker’s online trading platform. The platform has a list of available REITs, so you can buy the one you want using a limit order (to pay no more than you want to) or by accepting the live market price.
Top 10 REIT Shares to Buy
These are the best REIT stocks to buy in 2021 based on historical performance and asset portfolio:
- Realty Income (NYSE: O)
- SL Green (NYSE: SLG)
- Empire State Realty (NYSE: ESRT)
- Equinix (NASDAQ: EQIX)
- Safehold (SAFE)
- Federal Realty (NYSE: FRT)
- W.P. Carey (NYSE: WPC)
- UDR (NYSE: UDR).
- Essex Property Trust (NYSE: ESS)
- STAG Industrial (NYSE: STAG)
Realty Income (NYSE: O)
Realty Income was listed publicly in 1994 and, as of February 2021, has a market capitalization of $21.3bn. The company has a track record of declaring bonus shares to holders since its inception. Realty Income is extremely well managed and has performed relatively well in a very challenging economy brought about by the pandemic and growth in e-commerce (which has lured consumers away from physical stores). Shares of Realty Income returned 1.88% in the three months to February 2021.
SL Green (NYSE: SLG)
Manhattan's biggest office landlord, SL Green, manages some of the prime corporate properties in New York. The company’s property is leased to high-quality tenants under long-term agreements. SL Green recently added $500m to its share buyback program, bringing it to $3.5bn. At the time of writing, the REIT has a 5.7% monthly dividend yield, which has increased year over year for the past decade. SL Green returned 16.15% in the three months to February 2021.
Empire State Realty (NYSE: ESRT)
Empire State Realty Trust owns an enviable portfolio of office real estate, including the iconic Empire State Building. As of February 2021, the company had a $2.8bn market capitalisation and controlled 10 million square feet of real estate. Empire State has a $1.7 billion cash flow, which allows it to profit from the depressed valuations in corporate real estate in New York. The REIT returned 42.92% between November 2020 and February 2021.
Equinix (NASDAQ: EQIX)
Equinix owns and manages 210 data storage centres in 25 countries. Unlike the broader real estate market, data centre real estate benefited from the remote work and stay-at-home trend brought about by the pandemic. This REIT looks poised to benefit from the increasing use of big data and analytics, artificial intelligence, and the Internet of Things (IoT), which would lead to greater demand for data storage facilities. The REIT rose by 5.17% in the month to February 2021.
Safehold (NYSE: SAFE)
Safehold revolutionised real estate ownership and value by separating land from the building. The company owns, manages, and finances ground leases, providing a better alternative for owners to unlock the value of the land beneath their buildings. Safehold is managed by its largest shareholder, iStar Inc, and it had a market capitalization of $4.2bn as of February 2021. The REIT returned 15.845 in the three months to February 2021.
Expert Tip on Investing in REIT Shares“ When investing in REITs, look out for growth in earnings from higher occupancy rates and increasing rents, lower costs, and new business opportunities. It’s also expedient that you research the assets in the company's portfolio and the management team that oversees the management of these properties. Do not invest in shares of REITs with liquidity problems, because you may find it difficult to exit your position if there are not enough traders readily available to take the opposite side of your trades. Lack of liquidity would make it difficult to exit at the intended price. As a general rule, only trade REITs with a trading volume of at least 100,000 shares a day. This ensures that there are willing buyers to rid you of your holdings when you wish to exit a trade. Also, ensure you practise risk management as trading in REIT shares can be risky. ”- Emmanuel Ekwomadu
Why Invest in REIT Shares?
Historically, REITs have delivered competitive total returns owing to their high, steady dividend income and long-term capital appreciation. Their comparatively low correlation with other assets also makes them an excellent portfolio diversifier that can reduce overall portfolio risk and increase returns.
Some REIT stocks offer consistent dividends annually, so even if they don't appreciate as much as you'd like, they can nonetheless provide you with a steady income stream. Some of them operate great businesses but are just undervalued by the market, and your role as an investor is to find those bargains.
Frequently Asked Questions
A lot of news is available on social media channels, such as Twitter and Facebook. Many expert traders also offer advice on such media outlets. You can also add the stock to a portfolio and news tracking app that provides updates related to the share.
Yes. Most countries treat profits from trading as a taxable event. Check your local tax regulations before trading.
Yes. Most regulated platforms will insist on verifying your KYC documents before allowing you to trade. This is to provide a safe and secure environment for the users.
A regulated platform will list its regulatory status on its website. A list of some reputed platforms is also provided in our guide. You can also check the website of the relevant regulatory authority in the country where the broker operates to know if the broker is listed among the certified ones.
The primary step is to trade only with capital you can afford to lose and risk only 2% of your capital in each trade. Make use of a stop-loss order to ensure you don’t lose more than you wish to risk. There may be other strategies for reducing risk you can find on the websites of your trading platforms.
No. REIT stocks are traded during market hours, just like any other stock. But some brokers offer pre-and post-market hours trading.