Co-produced with Beyond Saving
In a recent article, REITs On Sale: Time To Buy Like It's 2009, we highlighted the benefits of the REIT structure and why we believe that the market is dramatically underestimating the durability of REITs.
In 2009, the market panicked over anything REIT, pundits were declaring that the commercial real estate market would collapse next and that REITs would be going bankrupt left and right. In hindsight, they were wrong. REITs proved to be very durable, and while cash-flow was disrupted, dividends were cut and many REITs were forced to issue equity at unattractive prices, 2009 was a fantastic year to be buying almost anything REIT.
The key thing that REITs have, that help them weather any economic conditions, is massive amounts of tangible real estate. Real estate is a highly favored asset by banks, because it has a value that isn't set daily in a stock market. It has an actual utility value – land can be used for something and nearly everything we do requires at least some use of land. This makes banks very comfortable with accepting it as collateral, and provides a lot of flexibility for REITs to work with lenders through tough times.
With the COVID economic crisis, REITs find themselves in another unique situation. Many tenants can't or won't pay rent as their businesses are disrupted and that has ramifications for REITs, which collect rent. Fortunately, most REITs are in a financially comfortable position, and have been able to grant deferrals. Notably, these are deferrals, not rent forgiveness. REITs own the real estate, and while cash-flow might be disrupted in the near-term, the tenants must eventually pay or they will be evicted. The tenants cannot just squat on the property without paying rent indefinitely.
While REITs are sold-off right now, as
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