Types and Structure of REITs
Equity REITs are the most common form of REITs. All the REITs to-date in Singapore are Equity REITs. Equity REITs invest in and own physical properties of various types such as residential, retail, office, hotel, industrial and healthcare properties. Most of them are specialised and they own specific building types. Their incomes are primarily derived from collected rents from properties in their portfolios, as well as any capital gains in the sale of such properties that have appreciated in value. Equity REITs are generally less speculative than Mortgage REITs as the REITs own the real estate directly.
Mortgage REITs invest in mortgages on real estate properties. They loan money for mortgages to owners of real estate, as well as purchase existing mortgages or mortgage-backed securities (MBS). As they do not own or manage any property, most of the incomes are generated by the interest earned on the mortgage loans. Mortgage REITs are more volatile than Equity REITs as they are exposed to greater and direct interest rate risks, mortgage servicing schedules and redemptions as well as the risk of defaulting by the borrowers. One advantage of Mortgage REITs is that they tend to perform better during times of low interest rate.
Hybrid REITs combine the characteristics of Mortgage and Equity REITs together. They own and manage both physical real estate properties as well as real estate loans. Most typical Hybrid REITs focus more on either equity or debt and there are very few equally balanced Hybrid REITs in the market.
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