Reliable Income REIT Portfolio Update: 1 Increased Stake And 1 New Buy

Includes: AHT, MAC, SRC, VNQ
by: Mark Roussin

1 new addition was made to the portfolio in July with the purchase of AHT-H preferred shares yielding 10%.

Increased stake in MAC after recent drop.

Portfolio has gained 5.1% since inception in January and has a Yield on Cost of 8.25%.

As you may know already, in January 2019 I launched the Reliable Income REIT Portfolio, for investors to follow and align their investments with me as we near the end of this historic bull run. The idea behind the portfolio is to invest in high-quality companies that provide high-yield and reliable dividends. There are not too many worse situations than a dividend investor seeing one of their investments cut a dividend they are relying on, especially those in retirement. Thus, a well-built REIT portfolio can be trusted to provide you a safe income stream even when times are tough.

As such, in order to help those looking to add high-yield REITs in their portfolio, look no further than the Reliable Income REIT portfolio as we grow it together. As the economy, both here in the US and globally, begins to show signs of a slowdown, I am suggesting to my followers to begin to re-position some of their investments in defensive names, such as the REITs in the portfolio below. Before we get into the performance of the portfolio thus far let’s go over our blueprint for the portfolio and give you a little more insight into why REITs deserve a spot in your portfolio. If you are new to REITs, feel free to take a look at one of my more recent articles, “Passive Income The REIT Way”, which goes into further details.

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Portfolio Blueprint

Let’s take a look at how our Reliable Income REIT portfolio will be constructed:

  • High-quality companies paying reliable dividends
  • Invest only in REITs
  • Target portfolio yield of 6+%
  • Include a combination of both common and preferred shares

Here are the rules we will be sticking by for this portfolio:

  • I start by making a $2,000 initial investment in each stock as it joins the portfolio.
  • Additional investments of $1,000 will be made if any initial investments remain a compelling buy.
  • Dividends will be collected until we collect $1,000 before making another investment
  • Only sell if the thesis breaks (dividend becomes unsafe, negative changes take place within the company, or strategy changes for the company).

Why Invest In REITs?

Investing in real estate is a tried and true method of successful investing that created many of today’s richest people in the world. In fact, a study done by Forbes in 2018 listed Real Estate as the industry having the third most billionaires in the world, at 220, or 10%.

What attracts people to real estate is the fact that the industry is usually a predictable business thanks in part to rental income, which makes this kind of investment highly attractive to long-term investors.

REITs tend to payer higher dividends than non-REIT stocks in part to their tax structure. REITs are required to pay out 90% of their otherwise taxable income to investors in the form of dividends in order to keep their REIT status. This structure forces REIT management teams to make the most of their capital as they do not have the luxury of investing back into their company through income as much as non-REITs do, but they gain tax advantages through their REIT status.

Being that real estate is vital to both people and businesses, the demand for properties is always there, regardless of economic conditions.

REITs can be a solid defensive play for investors in the event the economy begins to slow as well, which has been a hot topic of discussion of late. In a recession, REITs have the ability to decrease rents for tenants who may be struggling in order to keep properties filled. In return, income streams tend to remain relatively resilient and consistent over the full cycle.

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July Performance Update

Let’s first begin by looking at the performance of the S&P 500 and the VNQ for the month of July, for comparable purposes. In July, the S&P 500 and the Vanguard Real Estate Index Fund (VNQ) are both up 2.7%.

As for the Reliable Income REIT Portfolio, it performed slightly below the greater market with its 2.1% performance during the month. The value of the portfolio did increase to $11,004 invested now. My goal is to invest $25,000 by the end of 2019, but only if opportunities present themselves.

Here is a look at the portfolio performance through July 2019:

Created by author

July Highlights

  • Received $33.13 in dividend payments during the month from SRC
  • Current yield on the portfolio is 7.85%
  • Yield on Cost for the portfolio is 8.25%
  • Total gain on portfolio (with Dividends) is 6.8%
  • Total Dividends expected for 2019: $560

Portfolio Activity

During the month of July, I made a couple of purchases. The first was to increase our position in Macerich (MAC) by purchasing an additional 30 shares on July 5th for $33.05, which just so happen to be the closing price on July 31, so we were even on the purchase for the month.

Macerich continues to be under intense pressure due to continued weakness surrounding the retail industry. At High Yield Landlord, we commonly use the phrase “One man’s trash is another man’s treasure”, and we strongly believe that is the case when it comes to MAC.

We believe that it is mostly a question of time horizon. It is no secret to anyone that mall REITs are currently undergoing some disruption due to changing consumer behavior and the growth of e-commerce.

  • Traders hear mall; they think Amazon and closing stores.
  • Landlords hear mall; they think prime location and entertainment.

Far too often, REIT investors get overly focused on short term results and uncertainty; whereas private investors are focused on the long-term potential and understand that change brings opportunity.

As such, taking a long-term approach to this, I believe the opportunity that presents itself is reasonable enough to increase our position in the Mall REIT.

In addition, I made one new acquisition to the portfolio during the month by purchasing the preferred H shares of Ashford Hospitality Trust (AHT-H).

Ashford Hospitality Trust is a REIT focused on investing opportunistically in upper upscale, full service hotels that have a revenue per available room (RevPAR) generally less than two times the national average. AHT has managed to put together a strong portfolio by branding with the well-known Marriott and Hilton, along with having properties in desirable locations.

Here is a snapshot of the AHT portfolio:

Source: Q1 Investor Presentation

Though I do have concerns surrounding management, I believe in the company’s portfolio, thus the preferred route I am taking here.

Looking Ahead

Well we have now received our first rate cut since 2008 and the market reacted negatively. The Dow dropped over 300 points on the news. The main reason for the large drop was the indications Mr. Powell gave in his speech, which has investors thinking this may be the only rate cut for the year.

The uncertainty for the back half of the year, which I often talk about, has now begun. I expect the summer months to be a bit of a lull, for investors with more uncertainty creeping up later in the year. Earnings season has been rather solid for many companies that have released Q2 results thus far. Uncertainties around trade with China and Europe, weakness across the globe, and rising tensions with Iran and possibly North Korea again, not to mention the beginning of the 2020 election season hitting stride. A lot of uncertainty to say the least.

Now that you have had a chance to digest the portfolio results to date, I look forward to hearing your thoughts on the portfolio and hearing some of your ideas for any changes to be made. Good luck to everyone and happy investing!

Disclosure: I am/we are long SRC, BPR, PEI.PC, MAC, AHT.PH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Note: I hope you all enjoyed the article and found it informative. As always, I look forward to reading and responding to your comments below and feel free to leave any feedback. Happy Investing!

Author’s Disclaimer: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.