What distinguishes a hybrid REIT from other types of REITs?

A hybrid REIT is distinctive because it combines investments in both physical properties and mortgages. This dual investment strategy allows hybrid REITs to benefit from the income generated by tangible real estate assets, such as commercial buildings, while also leveraging the returns from mortgage loans secured by properties. This flexibility provides these REITs with diversified income streams, which can help to mitigate risks associated with market fluctuations in either sector alone.

In contrast, some REITs specialize solely in physical properties, investing directly in real estate and managing the assets themselves. Others may focus entirely on mortgages or mortgage-backed securities, providing financing for property owners and operators. Moreover, a hybrid REIT does not isolate its investments to just one type of real estate, nor does it exclude real estate entirely, which is why the correct answer highlights its hybrid nature.