What does a "portfolio diversification" strategy in REITs aim to achieve?

A "portfolio diversification" strategy in Real Estate Investment Trusts (REITs) aims to reduce risk by holding various types of properties. This strategy recognizes that different property types can perform differently under various economic conditions. For instance, residential, commercial, and industrial properties may react differently to market fluctuations, changes in interest rates, or economic downturns. By distributing investments across a range of property types, a REIT can mitigate the potential negative impact of a downturn in any single market sector. This approach helps stabilize returns and provides a more consistent performance over time, which is crucial for attracting and retaining investors.

In contrast, maximizing the number of tenants focuses on occupancy levels rather than on the diversification of types of investments. Although having multiple tenants can provide consistent income, it does not directly address the risks associated with property type concentrations. Increasing the share price and enhancing liquidity of investments are potential benefits of a well-managed diversified portfolio, but they are not the primary objectives of a diversification strategy itself. The core goal remains on reducing risk through a balanced and varied property selection.