Hybrid REITs are Real Estate Investment Trusts that hold an investment portfolio, which includes direct investments in property and investments in mortgages.
A Real Estate Investment Trust is a public company traded in the stock market and enjoys special tax exemptions. However, it is required to distribute a significant portion of its annual cash flow income to its stock holders as a dividend.
The advantage of REITs over direct property investments is their high liquidity, that is the easiness by which they can be converted to cash. However, they are more risky as REIT share prices have considerably higher volatility than property prices, due exactly to this higher liquidity.
Furthermore, their movements are not strictly affected by factors that affect the property market but also by broader factors that affect stock market movements. Thus, increases in the values of properties held by a REIT may not necessarily translate into increases in its share prices due to adverse broader factors that affect negatively stock markets worldwide.
Hybrid REITS may be less risky from REITS that have only direct property investments, if their loan portfolio is associated with strong credit borrowers.
Comments