Physicians Realty Trust is a healthcare REIT that focuses on medical office properties located on major health campuses or affiliated with health systems. The company owns about 250 properties and has grown rapidly since its 2013 IPO. With a growing senior citizen population expected to cause a steady rise in healthcare demand in the coming decades, there's plenty of growth runway ahead.
Seritage Growth Properties is an interesting retail REIT. It was spun off from Sears Holdings in 2015 to repurpose vacant Sears and Kmart stores and fill them with higher-paying tenants. So far, the company has had tremendous success despite the rapid Sears closures over the past year or so. The company isn’t currently profitable, but it has several high-dollar projects in the pipeline. That should translate to strong returns for patient investors. Seritage received a big vote of confidence from Warren Buffett's Berkshire Hathaway (NYSE: BRK-B) in 2018. The conglomerate entered a $2 billion loan agreement to help Seritage fund its operations.
Finally, Xenia Hotels and Resorts is a hotel REIT that owns 40 high-end luxury hotel properties. The company focuses on hotels with respected brand names in top leisure destination markets in the United States. Xenia creates value by renovating its properties, but also acquires and improves existing ones. With a rather conservative balance sheet, Xenia has lots of financial flexibility to pursue future growth opportunities.
More risk, more rewards
It’s important to remember that small cap stocks are usually more volatile than their large cap counterparts; larger REITs tend to be more mature companies, have more financial flexibility, and run more stable operations. This is especially true for smaller, rapidly-growing REITs, as there’s a lot of execution risk in ambitious growth plans.
Having said all that, if you’re looking for tremendous growth over time, you’re more likely to find it in small cap REITs than large caps. Just know that you’re taking on a bit more risk in exchange for a higher reward potential.