Entering text into the input field will update the search result below

2 Investments To 'Load Up' Before The Recovery

Jun. 11, 2020 8:25 AM ETIRT, SRC, SRC.PA75 Comments


  • After the recent market rally, investors must become more selective.
  • There still exists some great opportunities among smaller and lesser-known REITs, particularly in the net lease and residential sectors.
  • We present two of our Top Picks: Spirit Realty Capital and Independence Realty Trust.
  • Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Get started today »

Despite the recent rally, there still exists some generational buying opportunities among smaller and lesser known REITs. Companies that generally trade at 3-4% dividends yields are now offered at 6-8% yields, and offer 50-100% upside potential before they reach their former highs.

We believe that this is particularly true for net lease and apartment REITs because they are well positioned for a rapid recovery:

Net lease REITs own service-oriented properties with >10-year leases. Some rent payments are missing right now, but as we reopen the economy, rent payments will resume and most will remain at a pre-crisis level even if we go into a prolonged recession. The average rent coverage was around 2.5x for net lease REITs prior to the crisis, and therefore, even if profitability drops somewhat, they will still enjoy healthy profits in the aftermath.

Apartment REITs have dropped a lot, but their fundamentals have held up very well. Rent collection remains at 95%-100% and shelter is essential. It's not in the interest of the tenant to stop rent payments, which would only ruin their credit and result in an eviction a few months from now. Even assuming a moderate increase in vacancy and rent delinquencies, the bulk of the cash flow should remain stable.

Below we discuss two undervalued REITs, one net lease and one apartment REIT, that we are buying in anticipation of a future recovery:

Spirit Realty Capital (SRC)

SRC is our largest net lease REIT investment. It owns a diverse portfolio of freestanding single tenant retail properties such as Starbucks (SBUX) coffee shops:

Texas Starbucks Property Sale Arranged - The Boulder Group


We see SRC as a deeply-discounted version of Realty Income (O). Both companies are very similar in all aspects, but there's a sizable valuation gap:

Spirit Realty Capital (NYSE:SRC)

Realty Income (NYSE:O)

11x FFO

16.5x FFO

25% discount

Opportunities are Abundant! Act Now!

Here at High Yield Landlord, we are loading up on deeply discounted real estate at the moment. Opportunities are abundant and now is time to act while the market is volatile!

We are sharing all our Top Ideas with our 1,800 members. And you can get access to all of them for free with our 2-week free trial!

You will get instant access to our 3 Model Portfolios, Course to REIT investing, Tracking tools, and much more.

We have limited spots at a 28% discount. Get Started Today!

This article was written by

Jussi Askola profile picture
Become a “Passive Landlord” with our 8% Yielding Real Estate Portfolio.

Jussi Askola is a former private equity real estate investor with experience working for a +$250 million investment firm in Dallas, Texas; and performing property acquisition in Germany. Today, he is the author of "High Yield Landlord” - the #1 ranked real estate service on Seeking Alpha. Join us for a 2-week free trial and get access to all my highest conviction investment ideas. Click here to learn more! 

Jussi is also the President of Leonberg Capital - a value-oriented investment boutique specializing in mispriced real estate securities often trading at high discounts to NAV and excessive yields. In addition to having passed all CFA exams, Jussi holds a BSc in Real Estate Finance from University Nürtingen-Geislingen (Germany) and a BSc in Property Management from University of South Wales (UK). He has authored award-winning academic papers on REIT investing, been featured on numerous financial media outlets, has over 50,000 followers on SeekingAlpha, and built relationships with many top REIT executives.

DISCLAIMER: Jussi Askola is not a Registered Investment Advisor or Financial Planner. The information in his articles and his comments on SeekingAlpha.com or elsewhere is provided for information purposes only. Do your own research or seek the advice of a qualified professional. You are responsible for your own investment decisions. High Yield Landlord is managed by Leonberg Capital.

Analyst’s Disclosure: I am/we are long IRT, SRC, O. 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.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.