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3 Moat-Worthy REITs We're Buying In This Pandemic

Jun. 05, 2020 7:00 AM ETO, OHI, WPC65 Comments


  • Given the uncertainty related to COVID-19, we've been focused almost exclusively on the highest-quality REITs.
  • This widespread volatility has impacted many property sectors. Business models are now stressed due to weakened rent collection in April and May.
  • These three "moat-worthy" companies can increase earnings (returning cash to shareholders in the form of dividends) and compound intrinsic value.
  • Looking for a portfolio of ideas like this one? Members of iREIT on Alpha get exclusive access to our model portfolio. Get started today »

"In business," Warren Buffett has said, "I look for economic castles protected by unbreachable moats."

By that, he means well-built companies that don't take what they've built for granted. They've either:

  1. Entered into economic areas that are hard to conquer
  2. Taken measures since starting up to make their areas exceptionally complicated to enter.

Either way, their profits are protected against all but the most intense of attacks. That's what moats were designed to do for castles back in medieval times.

As I wrote in an April article, "3 Fortress REITs to Own During the New Era of Physical Distancing":

"… the truth is that castle-storming back in the day was supposed to be a long shot. Only extreme levels of planning, plotting, and resources could pull them down.

"They were built to be fortresses, strategically designed with features such as:

"Arrowslits - Holes up high in the structures from which archers could let their weapons loose while remaining largely protected.

"Keeps - Towers that rose as high up as possible to give great views of whatever might be coming…

"Portcullises - Heavy metal gates to protect main entrances.

"Barbicans - Fortresses outside of the fortress designed to be the first line of defense."

But out of all of that, you could make a very convincing argument that moats were the most useful protection possible.


Moats Matter

Again, castles were designed with safety in mind. And once they were really built, God save the peasant who tried to take them on.

If someone wanted to attack them, they were going to have to put in some significant effort, amassing armies with the right training, motivation, and equipment necessary to take them down.

Of course, as medieval history shows, that sort of thing could and did happen sometimes:

  • Arrowslits

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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 O, WPC, OHI. 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 (65)

Another great article, love OHI and WPC. O is one of your favorites but if I was adding a moat reit instead of O it would be MPW which you mention often as a favored investment. Two questions 1) Other than APLE are there any hotel REITs that are in your sights (i'm long on PK and HST) 2) Is APTS to small to draw your interest or is too challenged as far as what kind of reit it wants to be when it grows up? I'm in at $7....
Brad Thomas profile picture
@ColdwaterLonzo - Working MPW update this week for iREIT.... and an in depth Lodging article....sign up for 2 wee free trial : seekingalpha.com/...
anyone asking about SPG obviously doesnt understand what Brad is saying. A moat is impenetrable. not shopping malls that were just closed . jeeze, these comments are funny. the 3 companies mentioned are like underground secret bunkers. the questions asked are about paper targets at a busy shooting range. good luck
Brad Thomas profile picture
Even with SKT and BPYU, the Durable Income Portfolio, that mirrors my personal REIT portfolio, has returned an average of 19.45% annually since it commenced in August 2013: seekingalpha.com/...
@Brad Thomas The last sentence in your last quote from Buffet says: " The products or services that have wide, sustainable moats around them ATE the ones that deliver rewards to investors." What do they have living in those moats? Are they cannibals? LOL

Enjoy your articles. Thanks!
Brad Thomas profile picture
@Liberty76 Wow- You get a free book for spotting that awful typo. I am sending you a private message now. Thank you and have a great weekend. Brad
@Brad Thomas Thanks Brad. I have already replied to your PM with my mailing address. Thanks again!

birder profile picture
I don't like OHI at all. The other two, I like just fine and have large positions. I much prefer MPW although I am somewhat concerned that the virus will have a detrimental impact on their revenue. Heck, it is having a detrimental impact on almost everyone's revenue. But OHI, it could put them out of business.
MPW is one of my favorites as well. I am long on OHI. How could COVID run OHI out of business? Speculation or facts?
I think I may be the few who short this bugger and still earn some dividend yesterday
Brad Thomas profile picture
Adversity Is Bitter, But Its Uses May Be Sweet seekingalpha.com/...
bo0bo0 profile picture
So, OHI, O, WPC, and Warren Buffet. Does anyone know how many shares of these REITs Buffet owns?
DGI Hawkeye profile picture
I am long all three stocks and love the dividends. Wish I had the cash to buy more, but in retirement, I'm content to use the dividends to buy stocks on sale. Brad, your advise is much appreciated and that's why I own these stocks.
Brad Thomas profile picture
@DGI Hawkeye _ Thank you and have a great weekend. Brad
@Brad Thomas: Thanks Brad, I have had all three for some time. (5 to10 years)
Brad Thomas profile picture
@aochamp Nice job. Thanks for reading and all the best - Brad
Its TANGER TIME! Up a cool
130% since brad’s sell call at the bottom
Bought at 7, rose to 4, bought more on the sell call, sold at 7.5 and happy to be out. Anything I sell at a profit that is highly leveraged I consider a gift from this bear market rally.
Brad Thomas profile picture
@avandall Nice job - good luck and all the best! Brad
TropicTopics profile picture
"A" RATED? YEAH, WE GOT THAT.. Thanks to Brad Thomas and SPG~!
Brad Thomas profile picture
Thanks @TropicTopics Have a great weekend!
Would potential lawsuits from the coronavirus dim the prospects for OHI?
Brad Thomas profile picture
@jsrgale OHI is an owner of skilled nursing real estate but is not an operator - therefore their exposure to lawsuits is extremely remote.

However, it’s a fair point to question whether their capacity to collect rents from operators could be impinged by incremental lawsuits against operators. Skilled nursing facility operators have always been a target for professional liability lawsuits and therefore carry insurance to mitigate such a risk.

Furthermore, many have implemented infection control protocols, such as restricting visitors, even before such protocols were mandated - demonstrating their commitment to resident safety.

Finally, over 60% of facilities owned by OHI do not have a single case amongst either residents or staff. So, while there may be some marginal financial impact to some operators from lawsuits stemming from COVID-19 infections, it’s unlikely to be pervasive and, where the stock trades today, I would argue that this risk is more than reflected in the stock price.

As always, thank you for reading and please check out our best in class REIT research service: iREIT on Alpha seekingalpha.com/...

Have a great weekend!
Brad - i think you are greatly underestimating the liability, risk, and investment needed of LTC and SNFs as a result of COVID. In some states, over 70% of COVID cases and deaths stem from LTC and SNF.
Brad Thomas profile picture
@MNBadger I plan to work on a deep dive skilled nursing REIT article this weekend for iREIT subs. All the best - Brad
bobholt profile picture
Thanks for the information and analysis. I've added these 3 to my research list - for wHen I get done shifting new money to "Income",
Brad Thomas profile picture
@bobholt Nice jog. Good luck and all the best - Brad
Happy longtime holder of O and WPC, to both of which I was introduced by Mr. Thomas years ago. Traded out of OHI for VTR a couple years ago. Probably a capricious move in hindsight. Not adding to any of these now.

Retired income investor
Brad Thomas profile picture
Thanks @usiah - Have a great weekend and all the best - Brad
Great choices for the long-term. Thanks, Brad.
Very long O for a very long time.
Brad Thomas profile picture
@JCCIII - Thanks for reading and have a great weekend!
Could you speak to tax on REITS, if held in 401 in a state with no state tax?
Will have to see impact of new regulations on OHI operators.... and maybe the need for major capex improvements by OHI relating to air conditioning and air movement in facilities.... Covid19 finally got the nation's attention but these same problems of diseases running unchecked through a nursing home has been happening and was happening in 1980 when I started working and consulting to nursing homes. I testified about these matters before governmental bodies years ago..... DIF is a nursing home pendemic once loose in a nursing home and a killer too.

Everyone listened but did nothing and I am glad I have lived long enough to see actions finally going to be taken.

So investors need to watch the regulatory process to see how much it will cost OHI to bring their homes to some new standard and just as important their operators which are always crying poor and will now face the brunt of higher regulations by states and the feds and the reimbursement rates may be insufficient due to feds and states' fiscal problems to cover these higher costs.
Love and own all three, thanks Brad!
Brad Thomas profile picture
@Donquiote60 Thank you - have a great weekend!
gnewmie23 profile picture
Long O; also VER, VICI and ABR which were not mentioned here. :)
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