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3 High-Quality REITs To Buy: The Cream Rises To The Top

Mar. 03, 2020 7:00 AM ETDLR, SPG, VTR154 Comments


  • Over the years, I’ve written numerous articles on Seeking Alpha to steer readers away from sucker-yield stocks.
  • In this article, I plan to provide a few of our “sweet REIT” picks: Companies with the widest economic moats to fend off competition.
  • Though intelligent REIT investors know they can’t just purchase shares of “important companies” with wide moats, they need to also acknowledge margin of safety.
  • This idea was discussed in more depth with members of my private investing community, iREIT on Alpha. Get started today »

In March, we intend to focus almost exclusively on the topic of quality – one of the most important ingredients for investor success. Oftentimes, we see readers becoming mesmerized with yield instead, which only leads to ruin.

Don’t misunderstand us. High-yielding stocks can make for fantastic buying opportunities. But that factor should be a perk, not the main focus.

One of the ways we measure quality is by examining a company’s balance sheet. We’ve found that REITs that maintain discipline – in terms of their capital markets strategies – generally provide higher predictability in terms of their earnings and dividend growth.

Over the years, I’ve written numerous articles on Seeking Alpha, hoping to steer readers away from sucker-yield stocks. There’s always that temptation to own shares in something that yields 10% or higher, I know. But that also indicates an increased cost of capital and safety issues.

Why play around with that kind of dynamite when there are long-term prospects out there that offer much better returns?

The Defensive Investor

As Benjamin Graham explained (emphasis added), “The defensive investor must confine himself to the shares of important companies with a long record of profitable operations and in strong financial condition.

Those bolded words are highly correlated and essential to unlocking value.

As Graham also pointed out, “Consistency and durability are attributes for competitive advantage.” Or, as Heather Brilliant and Elizabeth Collins put it in Why Moats Matter, look for companies that can “fend off competition and earn high returns on capital for many years into the future.”

This is a strategy Warren Buffett would approve of. In 1999, he told Fortune:

“The key to investing is… determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them ate the

REIT Bracketology: Back by Popular Demand

2020 marks our 3rd year of REIT bracketology in which we will break down all REIT property sectors in order to determine the best companies to own. Our highly skilled analysts will provide play-by-play coaching so you will not foul out and you can obtain the most predictable results.

Act Now so you can get your front row seat before tipoff! We want to make sure your winning team makes it to the Final Four and hopefully puts you in the winner’s bracket.

This article was written by

Brad Thomas profile picture

Brad Thomas has over 30 years of real estate investing experience and has acquired, developed, or brokered over $1B in commercial real estate transactions. He has been featured in Barron's, Bloomberg, Fox Business, and many other media outlets. He's the author of four books, including the latest, REITs For Dummies.

Brad, with his team of 10 analysts, runs the investing group iREIT® on Alpha, which covers REITs, BDCs, MLPs, Preferreds, and other income-oriented alternatives. The team of analysts has a combined 100+ years of experience and includes a former hedge fund manager, due diligence officer, portfolio manager, PhD, military veteran, and advisor to a former U.S. President. Learn more

Analyst’s Disclosure: I am/we are long VTR, SPG, DLR, CONE. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (154)

Jhalgren profile picture
While I appreciate this attempt to seek value, well, from a macro perspective as we sit today--the selection you picked will not hold up due to pandemic. Simon is laughable as it will be shocked by retail closures; then, Ventas with too much senior housing that maybe in peril during a COVID-19 outbreak; then, finally, DLR: with cloud computing I don't see the value of it.

So when the Earth is in trouble, well, hospitals are needed and doctors too so I think MPW and DOC are superior options now and after the coronavirus too--logical with an aging globe!

I rest my case and best wishes to all.
And that’s exactly what I am doing adding to my high quality REITs. Bought more VTR this morning on the dip. Great YOC and for the long term. And bought more CONE DLR too. !!
Long term monthly chart still looks good on this one. i don't see any divergences. REIT's FFO isn't something I'm super well versed on.

Dividend.com has em paying out 431.29% of earnings. How safe are these Dividends on a FFO basis? Somebody linked a site explaiing it for me once, but I forgot to bookmark it.

Looking to pick up LT bargains when I can find them.

MarketTalk profile picture
Brad, I never rule out anything, perhaps your buddy David Gladstone is freeing up some funds to buy assets from Farmland? I would invite you to call into Farmland's upcoming call, and ask your questions to Paul.
SPG down 24%, is another dog that I bought on your recommendation. VTR is not at all interesting at these levels based on my analysis. Am looking at DLR and will decide over the next four weeks. All research reviews have SPG and VTR at 2 and 3 which poor grade respectively DLR is at 5 to 6.5. Need to improve you research before writing the articles.
So, even after the recent decline, Ventas is trading at 14X FFO; and growth will be negative (maybe zero) in 2020. Not a buy in my models. Will look again when the stock price reaches $40.
FWIW, VTR Broke past a neckline of H & S Reversal pattern that is pretty clear to see on weekly charts.

If it plays out to the pattern forecast, you're looking at downside target to 2014 lows in the 36.00 range.

Not a prediction, just a point of consideration in your analysis.
Thanks Jaker. Net volume on the daily chart turned negative at the end of February after being positive for 2 months. It was negative from mid September through until the Dec options expiry, coinciding with a 20%+ decline.
what do think of kref
Brad Thomas profile picture
@trojan57 Like! KKR knows their stuff!
I would caution any comparison of Ebola to corona virus .. totally not even close .
Ebola affected a part of the world easily isolated and which contributed and still contributes less than 0.1 % of anything in global terms
The supply chain shut down emanating from China and the impact on leisure/travel/shopping will be enormous if Corona is not contained ... I would be very very afraid
birder profile picture
I am a fan of DLR. Not so much though of SPG and VTR.
Brad Thomas profile picture
@birder DLR is safe bet... Thanks for reading and all the best
jerryki profile picture
RoseNose: You wrote "Sometimes I just can not believe how cheap SPG has gotten, amazing." Today it's 122 and Wall St. hates this stock so much that by selling a Jan 2021, 110 put, you can effectively buy it today for less than 101 !!! I've written similar comments in the past and when SPG was in the 140's I was happy to sell April 2020 puts which let me effectively buy SPG at about 125. Not so happy now, but there's still a month plus to go, and I'm WAY better off than if I'd simply bought the stock.
Using a "mental allocation" of about 50% of the value of 100 shares (the broker requires much less), you'd be miles ahead to effectively buy SPG today at 101 (!!!). rather than to buy the stock outright.
Simon may be best of breed, but no matter how competent the management, and how low their cost of capital, etc., etc., etc., any mall investment is swimming against the Amazon tide which has so many ramifications that as Brad T says, he's underweight the sector. Wise advice from the best.
Tom_S profile picture
I've already had coronavirus cancellations on my airbnb's . Not feeling good about the potential effects on bricks & mortar as people and companies avoid non-essential travel, crowded retail establishments and fact-to-face meetings.
ChuckyCheese profile picture
Put DLR, SPG, VTR on a 5 yr price chart and compare!!!. We have owned DLR since its IPO. We have many B/S around a core position with a Yield on Cost of 7.5%. We watch SPG and VTR but these are for trading, and we are not very good with that.
This is one of those amazing situations that comes infrequently... I have been adding, SPG and DLR as I average down from initial investments. I am taking my time with VTR, since I suspect coronavirus could have a significant negative impact on senior facilities.
Brad Thomas profile picture
@Dr. LouX Thanks.....I published a coronavirus edition REIT article last night on the marketplace, in an effort to cover all of the property sectors and their potential impact: seekingalpha.com/...

Good luck with SPG and DLR. All the best. Brad
Brad this is easily the worse stock I bought based on one of your articles SPG. I bought in at about $175/share and it's currently about $122.75/share.. That is a large percentage of the money that is lost.. I will need 6 years in dividends to break even.
Brad Thomas profile picture
@Realist98 "I will need 6 years in dividends to break even." You are assuming no price appreciation? Patience is a virtue....and diversification is a must! Thanks for reading and all the best. Brad
muskymcgee profile picture
Good article. Thanks.
The company is failing and this new health initiative plan is simply grasping at straws.
Bay Area Kid profile picture
Why Ventas over Welltower?
Angelo_A profile picture
DLR is my pick if market routs a bit more. Would love to see some analysis to REITs that apply to global high living rent / cost cities . Have you done an article about any of such ETFs exist? Thank you for your great article!

I'm seeing people slowly changing going to malls for e-commerce at least in Europe. I live in Portugal, Lisbon.
@Angelo Abel - Beautiful country and city. Self toured most of Portugal some years ago avoiding the southern tourist areas
wildpitcher profile picture
I"m long DLR and loving it.

I'm basically out of all the Health Care REITs. If I come back in, it may be with PEAK.

Marty Zweig said years ago "the trend is your friend". In the case of SPG, that means "no touch" for me for now.

I like AMT, DLR, and PLD long term. I’m a believer in continued long term growth in 5G, Big Data/Cloud, and E-commerce. I consider myself more of a total return REIT investor.
wildpitcher profile picture
---------I like AMT, DLR, and PLD long term. ----------

@Mr.Sceptic ,

I'm with you. I own DLR and PLD. I have CCI instead of AMT.

Your pitch is right on
Guy at Work reading SA profile picture
Thanks again Brad. Will be averaging down on SKT and SPG once volatility dies down a bit in the 10yr and the sky stops falling. Do you think averaging down on PK into a half position at this point would be wise too?
Brad Thomas profile picture
@Guy at Work reading SA Deep dive SKT valuation article published on iREIT tomorrow: seekingalpha.com/...
@Guy at Work reading SA I have been adding PK, but there may be more beneath for an additional drop.
Guy at Work reading SA profile picture
@Dr. LouX @Brad Thomas Thank you. Will read the SKT article and most likely average into a PK position.
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