Reading Time: 2.5 minutes Real Estate Investment Trusts (REITs) provide investors with exposure to property assets without the need to invest directly. The REIT itself owns and manages property on behalf of shareholders. A REIT operates in most respects just like any other UK publicly traded company. However, there are is number of criteria that must be met in order to qualify as a REIT. There are restrictions imposed by the REIT regime pertaining to shareholding limits, the minimum number of shareholders and the maximum stakes a single shareholder can hold. A significant part of the REIT’s activity must relate to its property rental business, for example, passive rental income; also known as ‘qualifying property rental businesses’. Companies that obtain REIT status are exempt from corporation tax on emanating profits or gains. In return, however, they must distribute at least 90% of their taxable income to shareholders, where it is taxed as property rental income, rather than as dividends. The regime also sets out the parameters for the minimum number of properties a REIT must hold, as well as concentration risk avoidance measures to ensure that the REIT value is not all centred on one property alone. One of the issues with traditional open-ended property funds is that in stressed markets there is often a large pickup in redemption requests. If the fund does not have enough liquidity to meet these requests, it can result in forced sales, fund suspension, or even dissolution/liquidation. Since these occurrences are unpredictable in nature, open-ended funds can never fully invest all their cash, as they have to anticipate a certain level of redemption at all times. This is referred to as the ‘cash drag’ and can hamper performance. Therefore, as REITs are closed-ended, they do not have this issue, with the share price subject to the forces of supply and demand. This is not to say that the closed-ended structure better protects shareholders, but it simply affords consistent liquidity. A shareholder may have to accept a price much lower than the published net asset value of the REIT if they wanted to sell in a tough market. As a result of these attractive features, REITs have become popular with investors seeking an attractive level of income and exposure to property without the liquidity risk which is typically associated with property investing. As the sector has evolved and expanded, there is now a multitude of different REITs for investors to choose from, and the type of properties they own often distinguishes them. To name and briefly cover some of these different types: Self-Storage REITs Self-storage REITs have shown lucrative growth potential, especially in Europe and the UK, where competitiveness in the market has not yet peaked. In recent years, the storage business has re-invented itself. Gone are the days of non-descript rows of garage-like facilities, which have now been replaced with eye-catching buildings in prominent locations that provide a clean, secure and convenient way to store things. Home-movers and renovators often utilise self-storage facilities to manage the transition between properties, and people often use them to store bulky seasonal items too. The self-storage sector is a beneficiary of demographic change. For example, the majority of customers are over the age of 35; suggesting that an aging population is good for business. In addition, rising trends in divorce rates are also beneficial in this area, as those falling into this category have been shown as more than twice as likely to use self-storage as a single person. Customer attributes such as these result in a largely recession-proof business. Warehouse REITs Growth in online sales and the promise of shorter delivery times means that businesses need to have more distribution centres within a short distance of homes and workplaces. However, high costs of development, planning constraints and lender caution have resulted in a shortfall in warehouse availability, and a corresponding rise in average rents. Industrial REITs and Infrastructure REITs Numerous REITs focus on factory spaces and other industrial facilities. There are even some REITs focusing on data centres, which is generally referred to as ‘cloud storage’. Data in the ‘cloud’ still has to be stored on another server, not just your own. Data companies can provide ‘on-ramps’ to leading public cloud platforms via secure, high-performance interconnection services. More traditional infrastructure REITs provide the financing for a range of ‘big ticket’ projects such as hospitals, toll roads, and renewable energy transmission- just to name a few. These provide investors with exposure to real assets, offering stable and inflation-linked cash flows.