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I know there’s not much room for trust these days. I know the world feels like it’s been turned upside down.
I know there’s not much that seems stable right now, especially after Sunday’s announcement that the White House is recommending social distancing measures through the end of April.
For many, that means lack of income for an entire month on top of two or three weeks of joblessness. And that automatically means less money going into an already hurting economy.
Businesses are shuttered – perhaps for good. And even those still open – with the exception of grocery and drug stores – are still bleeding money overall.
It’s an unprecedented situation, as we keep hearing. And so we have unprecedented issues to deal with.
But that doesn’t mean we can’t deal with them. That doesn’t mean there won’t be business survivors out of this.
The way I’m crunching the numbers – which is each and every way possible – I believe that real estate investment trusts will be among those business survivors.
I believe that so much, I’m willing to put my own money into them even now.
Don’t Jump Right In. Consider Carefully First.
Before you jump into the markets to buy up every REIT, please don’t get me wrong: I’m not saying every REIT will survive.
To be clear, some most definitely will not.
Right now, the entire mall sector isn’t looking good, I’ll admit. And there are a few other areas that are shaky at best.
But as an overall sector, REITs provide about as good of a long-term protection/profit combination as possible. Subject expert Nareit explains:
“REITs are total return investments. They typically provide high dividends plus the potential for moderate, long-term capital appreciation. Long-term total returns of REIT stocks tend to be similar to those of value stocks and more than the returns of lower-risk bonds.”
As it goes on to note, there are five major reasons to invest in such investments:
- Competitive long-term performance.
- Substantial, stable dividend yields
- Liquidity
- Transparency
- Portfolio diversification.
That last one is especially important, since it more often than not means REITs have low correlation with their fellow stocks as well as bonds.
Meanwhile, here are some further insights about them from iREITinvestor.com:
Concerning liquidity… “There are 200+ REITs traded on U.S. stock exchanges with a combined equity market capitalization of more than $1 trillion.”
Concerning transparency… “REITs provide added visibility into their finances and operations.”
And concerning performance…
“REITs’ track record of delivering reliable, growing dividends, as well as a long-term capital appreciation through stock price increases, has historically provided investors with total returns that are competitive with those of other stocks and higher than most fixed-income investments.”
As for their much-hailed dividends, I saved that for last for a reason. Because it’s only fair to point out that everything listed above is pre-coronavirus information. It was published last year or earlier.
However, that doesn’t make it inaccurate.
The Short and Long of the REIT Situation
For the last few weeks, REITs have been cutting or completely suspending their dividends – hardly attractive actions considering how that’s one of their claims to fame.
Nobody’s ignoring that fact. If anything, the entire real estate industry is fixated on it, including The Real Deal, which wrote last week:
“… while REITs may already be cutting dividends and paying out more in stock than investors may like, experts said it would be unlikely for REITs to all together ditch their designation – a process called de-REITing – in an effort to keep cash on hand to run operations.”
Instead, they’re taking unprecedented steps to survive during unprecedented times.
Moreover, on March 27, Sarah Borchersen-Keto wrote this for Nareit: “Strong Pre-Crisis Real Estate Fundamentals Will Help Sector Navigate Current Volatility.” The piece involved an interview with CBRE’s Head of Occupier Research, Americas, Julie Whelan, including this segment:
“Fundamentals in the real estate sector were strong heading into the crisis, Whelan observed, as she pointed to solid occupancy levels and a disciplined approach to construction. ‘All of that has set us up to weather the storm that we’re in quite well,’ she said.”
So the roiling markets aside, we expect this time ultimately won’t be different. REITs are still a worthwhile holding.
It’s just that – also not one bit different from the norm – we don’t want to go into these investments blindly. We don’t want to go into any investment blindly.
As I wrote earlier in this article, not every REIT will survive this crisis. Just like not every REIT… or bank… or other business… survived the last one.
So keep your head on straight. Don’t fall for price alone. Don’t fall for yield alone.
“Fall” for fundamentals instead. Which companies have it? Which companies don’t.
There are no guarantees in life. But the more have-its you put in your portfolio together today, the more of a portfolio you’ll have when this coronavirus crisis is past.