Real Estate Investment Trusts (REITs) - Hybrid And Retail REITs
Hybrid REITs combine the investment strategies of equity REITs and mortgage REITs by investing in both properties and mortgages.
Approximately 24% of REIT investments are in shopping malls and freestanding retail. This represents the single biggest investment by type in America. Whatever shopping center you frequent, it's likely owned by an REIT. When considering an investment in retail real estate, one first needs to examine the retail industry itself. Is it financially healthy at present and what is the outlook for the future?
It's important to remember that retail REITs make money from the rent they charge tenants. If retailers are experiencing cash flow problems due to poor sales, it's possible they could delay or even default on those monthly payments, eventually being forced into bankruptcy. At that point, a new tenant needs to be found, which is never easy. Therefore, it's crucial that you invest in REITs with the strongest anchor tenants possible. These include grocery and home improvement stores.
Once you've made your industry assessment, your focus should turn to the REITs themselves. Like any investment, it's important that they have good profits, strong balance sheets and as little debt as possible, especially the short-term kind. In a poor economy, retail REITs with significant cash positions will be presented with opportunities to buy good real estate at distressed prices. The best-run companies will take advantage of this.