Market Basics & Characteristics
A listed real estate company and a Real Estate Investment Trust (a ‘REIT’) are companies that own or finance income-producing real estate. Such a company provides regular income streams, diversification and long-term capital appreciation to investors of all types. The company is listed on a national stock exchange to ensure fair and orderly trading as well as efficient dissemination of price information for the underlying company security.
Listed real estate companies acquire commercial properties – such as office buildings, shopping centres and industrial buildings – and lease the space in the structures to tenants, who pay rent. After paying the expenses associated with operating their properties, the listed real estate company pays out the majority of the income they collect to their shareholders as dividends. In turn, shareholders pay the income taxes on those dividends.
Listed real estate companies include capital appreciation from the sale of properties in the dividends they pay. In this way, the dividend distribution is designed to mirror the investment return an investor would receive if they owned properties directly without the need for them to buy or finance property.
The precise minimum percentage of dividend paid to shareholders in the case of a REIT is governed by national legislation in the case of countries operating REIT regimes.
Listed real estate companies have grown in importance as an investment class. To reflect this growing importance, and as of 1 September 2016, the Global Industry Classification Standard (GICS) that is used by MSCI and S&P Dow Jones to classify securities on global stock exchanges, created a Real Estate Sector. This is the first new sector since the inception of GICS in 1999 and the 11th sector within its framework. Previously, listed real estate companies were classified within the GICS Financials Sector. The creation of a Real Estate Sector is expected to create a larger and more diverse investor base.
In a similar move, FTSE Russell's Industry Classification Benchmark (ICB) undertook structural enhancements including the creation of a Real Estate Industry, effective as of 1 July 2019. This is an additional industry for the ICB that takes it from 10 to 11 industries. The move reflects FTSE Russell’s belief that the real estate segment has reached critical mass in global stock markets. As of 31 July 2017, real estate stocks – including real estate investment trusts (REITs) – comprised 4.1% of the FTSE Global All Cap Index, representing nearly USD 2 trillion of investible market capitalisation. FTSE Russell noted that the lower correlation of listed real estate to other stocks in the medium to long run may help diversify investment portfolios relative to other asset classes
Listed real estate company sectors
It is possible to invest in all real estate sectors through listed real estate companies.
Listed real estate companies that own and manage commercial office properties and rent space in those properties to tenants. The company may focus on specific types of market, such as prime locations or provincial cities and may focus on specific classes of tenants, such as governmental agencies or information technology firms.
Listed real estate companies that own and manage retail properties and rent space in those properties to tenants.
Listed real estate companies that own and manage industrial facilities and rent space in those properties to tenants. The company may focus on specific types of properties, such as warehouses and distribution centres.
Listed real estate companies that own and manage various residential formats and rent space in those properties to tenants. The company may specialise in single-family houses, multi-family housing and apartments.
Listed real estate companies that own and manage a variety of health care-related properties and collect rent from tenants. The company property types may include medical office buildings, hospitals, general practitioner practices, senior living communities and skilled nursing facilities.
Listed real estate companies that own and manage storage facilities and collect rent from tenants. The company may rent space to both individuals and businesses.
Listed real estate companies that own and manage a mix of property types and collect rent from tenants. For example, the company may own portfolios made up of both office and industrial properties.
Listed real estate companies that own and manage student property and collect rent from tenants. The company may focus on purpose-built accommodation off site and accommodation on campus.
Lodging & resorts
Listed real estate companies that own and manage hotels and rent space in those properties to tenants. The company may own different classes of hotels based on features such as service level and amenities.