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There Might Not Be Another Chance Like This For Years



  • REITs have strongly recovered over the past months and it's causing investors to pause.
  • I think that we're still in the early stage of a multi-year repricing that will push REIT valuations to new historic highs.
  • There's no other alternative for income-seeking investors in today's yieldless world.
  • Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Learn More »
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Photo by Lurin/iStock via Getty Images

Right now, one of my most frequently received questions is whether it's too late to invest in REITs?

REITs (VNQ) have appreciated by ~70% over the past year, and understandably, it's causing some investors to pause.

Generally, you would want to

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This article was written by

Jussi Askola profile picture

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 BAM. 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 (297)

Henry Miles profile picture
Clearly not paying attention to major commodity prices, the PMI, and CPI.
Jussi Askola profile picture
Yes, we are. We think that we will see a covid inflation "mirage" as we get out of the crisis.
@jussi Askola I don't know much about REITs except they must be a kind of mutual fund that invests solely in various kinds of real estate.

I don't think it is any secret that any company involved in commercial office buildings is already, or is going to be, in real trouble as work at home becomes the norm even after the virus scare is no longer an issue.
For example the company I work for (a software company) has not renewed any of its office leases, and to my knowledge, this is happening all across the country. Going into work at an office is a complete waste of time and money. I would never again work for a company that requires me to commute an office and I think a lot of people feel the way. So goodby to office spaces, unless maybe offices are converted into condos. That might be a real growth opportunity. What do you think?

Also what is this "cap rate" you've mentioned so many times? I've never come across that terminology.
jara-mill profile picture
@Richard Gostanian - @SmarterRisk beat me to it but from the HYL Service - Intro Course on REIT investing:

"Cap Rate: The capitalization rate (also known as cap rate) is used in the world of commercial real estate to indicate the rate of return that is expected to be generated on a real estate investment property. This measure is computed by dividing NOI by the property asset value and is expressed as a percentage."

Source: www.investopedia.com/...
Tao Jaxx profile picture
“housing, renewable energy, timberland, Bitcoin (BTC-USD), etc.”
There’s this thing called performance chasing...
You forgot ARKK and EVs by the way.
SilverisREALMoney profile picture
Thanks for the article. DATA Reits are where one should look as demand for server farms is only getting bigger... Digital Realty (DLR), Equinix REIT (EQIX), Crown Castle International REIT (CCI), and even American Tower (AMT). Some HEALTHCARE REITS have promise, too. Omega Healthcare (OHI) and Medical Properties (MPW) are a couple that come to mind. MY FAV REIT is Innovative Industrial Properties REIT (IIPR), which has a brilliant business model in the exploding Cannabis sector (42% CAGR thru 2023) and is the only REIT in that sector which I am familiar with but b/c of their shrewd business model, which is kind of analogous to Precious Metal Royalty/Streaming companies like Wheaton Precious Metals (WPM), they are buying up all the greenhouses and leasing them back to customers. They have a healthy dividend of 2.92% or $5.28/share and have shown tremendous growth in REVS and E.P.S. over the last 4 years...
Jussi Askola profile picture
@SilverisREALMoney I would be very careful with IIPR. Their business model is much riskier than you appear to understand.
Will104 profile picture
@Jussi Askola

1kg of weed in Africa costs about the same as a gram in the US

Huge potential for government to raise import levies for that

Which would devastate the US domestic growers (other than possibly niche/high end)

IIPR has unquestionably been a great high - but I’d be careful of a brutal comedown
@Will104 There are many quality levels to weed. Some truly is "weed"... hemp.
SilverisREALMoney profile picture
Nice Article. I like the following REITS, starting with my FAV (IIPR). Also like (DLR), (AMT), (EQIX), (CCI), (MPW), (OHI), (O), (SPG), (EXR), (UDR), and I also like Income stocks (BTI), (MO), (BIP), (WBA), (HTA), (SCU), (PSXP), (EPD), and (HTGC).
Or you can turn any stock into an income stock by selling calls. If they get called away who cares? You got your premium. It’s not hard at all to make 2.5% per month. Compound that for 12 months and you made 30%+ What a yield monster. Yeah, you can’t just sit back and watch - you have to manage your portfolio, but my point is that REITs aren’t the only way to produce income. Also don’t forget that there are stocks that are paying nice dividends also. So yeah REITs might be nice if the cap rate is halved, but does anyone think this is sustainable? I don’t. Eventually we’ll see inflation, and if the democrats have their way and start taxing the hell out of us all, possibly stagflation. What happens to your sweet REIT when the cap rate goes from 2 to 8?
Jussi Askola profile picture
@dawgydaddy I think that it makes sense when the market is fully valued or overvalued. However, today, most REITs remain underpriced and therefore, I think the risk-to-reward of this strategy is poor. You'll lose on gains as your positions are called away.
@dawgydaddy You don't expect real estate values to increase on inflation? That also drives cap rate up.
Thanks for the article I have recently started to look at some safe high yield/growth reits to invest in
Jussi Askola profile picture
@rednotgreen Thank you for your interest!
BST has also upped it's dividends regularly and paid like clock work. You'd be invested in Technology too , so expect the SP to outpace alternatives, having all the big names with deep coffers and insanely healthy books, and get a 4.5% Yield to boot. I have ZERO idea why bonds would be part of anyone's diversification anymore. (I like Reits, I'm just dove tailing with an alternative with similar benefits)
Jussi Askola profile picture
@awstout1 Thank you for sharing your thoughts.
So, yes, and no. I have been in REITs for a while....you know, chased some dividends, got caught holding the bag when they decreased the payout, and the stock price dropped like a rock. So, my advice is to pay close attention to both the payout percentage and the amount of debt/new stock issuance. Any increase in debt is a decrease in earnings/share unless they have a really good place to leverage it. When that dividend payout is over 100%, you know that can't last. The reduction in payout is coming, and the reduction in stock price will follow quickly.
4Logos profile picture
@PrettyInGreen well said...I joined your club!
Jussi Askola profile picture
@PrettyInGreen Stick to high-quality REITs that have proven to be able to not only sustain but grow their payout. Do your due diligence and do not chase for yield. Our Retirement Portfolio did not suffer a single cut in 2020: seekingalpha.com/...
Gio Danisi profile picture
@Jussi Askola
Yes, REITs are definitely a different beast from other stock classes: here it is counterproductive to try to pick up the one with the best product and best growth perspective and profitability. The product is pretty much the same for every equity REIT, that means the biggest ones will always have a competitive advantage towards the mid cap or the small ones.
Big & Tall profile picture
Thanks for your article. I appreciate your articles and I appreciate your willingness to respond to the many comments to your articles. I am a follower!
I am now a retired investor, 64 years old. I have not owned many REITs in the past but have started to be more interested in having income generating investments since retiring at 63. I bought IIPR in Q4 2019 and have added more shares in Q2 2020. My avg cost is ~$72. In addition to the nice increasing dividends (currently $1.32 per qtr), the stock has appreciated to $183 as of the close today and has been as high as $220. I sold $210 covered calls for $7.50, got called out and bought back the next week at $203. In my Roth IRA account so all dividends are tax free.

I have a similar experience in SPG bought in Q3 2020 which now pays $1.30 in qtrly dividends and has almost doubled since I bought it at $64. purchased in IRA account so dividends for my SPG is tax deferred.

Fellow SA readers, REITS belong in your portfolio and should not be overlooked as part of your balanced portfolio. Do your due diligence and pick good ones. Jussi is someone you should “follow”. I look forward to his articles and thoughtful guidance/ advice.
Jussi Askola profile picture
@rpeders I appreciate your kind comment, thank you very much! If I can help with anything, let me know.
nationalnotes profile picture
What happened to all the SPG naysayers? Good article Jussi.
Jussi Askola profile picture
@nationalnotes Thank you for your kind comment.
nkaln3 profile picture
Reits, like TIPS only better.
Jussi Askola profile picture
@nkaln3 Like TIPS in the sense that they protect against inflation, but enjoy much greater yield and total return potential. That's quite attractive if you ask me.

REIT dividends are eligible for 20% qualified business income deduction, Treasury interest is fully taxable.
Jussi Askola profile picture
@user 11202791 Thanks for the addition.
Got to admit I'm pretty reluctant to dive back into REITs after heavy buying in March 2020. I guess I'm just too much of a bargain hunter. I've been skimming some heavily beat up Chinese super stars like BaBa sub 225, so opportunities do exist in other venues but you have to look really hard, accept unique risks and have lots of patience.

But I will add more REITs if we get a hiccup some where down the line. I've been very happy with MPW and STOR, both of which I added significantly too last March.
jara-mill profile picture
@cjsmit77 - Before I joined the HYL service I only had 2 REITs....those are the 2 you mentioned: STOR and MPW. One is in my Roth IRA, the other in my HSA, and are my 2 largest REIT holdings. Long-term on both.
@cjsmit77 WPC and O seem attractively priced with solid yields. I’m avoiding VNQ at the moment since it seems pretty fully valued and offers a smaller yield.
@scotty914 , the only problem with WPC is the stock's been dead price wise for a long long time. That's not how dividend growers behave. The dividend grows the price should be following. Don't know how it will perform in the long run, now it can be traded actively. Add on pullbacks trim on strength.
as inflation increases and rates go negative the prices could go to infinity x2 or even x3
Jussi Askola profile picture
@brooklynbedding.com In Germany, a lot of properties appreciated by a multiple as this happened.
@Jussi Askola I believe you. We are mostly cogs in a wheel. The age of financially engineered prosperity could go on for a very long time but I still don't necessarily think it's right. I produce a tangible product and I have real cost in my product. If someone steals my product they have really good margins when they resell it. For most of us are product is labor. For the upper classes our product is labor plus capital plus the risks we take. Governments and the powers that be provide a product that we call "money". The cost to produce it is very inexpensive and the margins are huge, like stolen goods they can afford to sell at steep discounts. That is what's happening right now.
Jussi Askola profile picture
@brooklynbedding.com Thanks for sharing your thoughts. Note that the replacement cost of real estate is also rising rapidly at the moment. Building materials and labor are both getting pricier.
@Jussi Askola you forgot the best option for investing your capital, Bitcoin. Ethereum is also a great option. As are Gold and Silver. International bonds and floating rate funds are another alternative, especially to treasuries. I own all of these and have done very well. I also write calls against GLD and SLV to increase returns and generate income. In the case of SLV, I have made 23% ROI selling calls the last 7 months (since I opened current position) which is 3.3% per month. That's over 36% annualized return. Amazing what you can do if you think outside the box.
@Rod9857 Hope you’re not a financial advisor.
Jussi Askola profile picture
@Rod9857 I have nothing against cryptos, but I wouldn't see them as "investments". They are non-productive assets with no intrinsic value. People gamble with them.

Gold and silver have been some of the very worst investments in the long run. They have barely kept up with inflation.
@Jussi Askola I apologize, I only read the beginning of your article and see you did mention cryptos in your alternative category. I also agree that real estate is a better alternative than traditional stocks in general. However, after this run up and in light of the changes due to the pandemic, I'm not comfortable buying REIT's here. You may be right though and they do offer good income.

I got in BTC and ETH relatively late, BTC in Jan 2021 and ETH in Feb, but am up 60% on BTC and 30% on ETH. Not bad for less than 3 months. They are volatile, but mostly to the upside and clearly have value and are still very early in the asset class adoption phase as more institutions and corporation are just starting to take positions. I expect 4x+ more upside from both this year and plan to exit and wait for another major bear to get back in. Most people don't understand it and that's ok, it's not for everyone, just like using options is not either. And no @Mayo Man, I'm not an investment advisor, just an investor with over 40 years of experience.

"Gold and silver have been some of the very worst investments in the long run" Seriously? GLD which underperforms actual gold has gone up 260% since it's inception in late 2004, over the same time the S&P500 is up 250%. Going back to 1971 (50 years) gold is up 4,347% and SPX up 3,933%. Prior to 1971, gold price was pegged so not fair to compare. This does not include dividends, but gold also provides portfolio diversification benefits as it is not usually uncorrelated to stocks during bear markets.

Office space commercial real estate will be slammed for years.
Jussi Askola profile picture
@mlhutche Only ~5% of REITs invest in office buildings. Most REITs invest in more defensive property sectors such as apartment communities, data centers, e-commerce warehouses, farmland, etc. As always, some property sectors do better than others, but for every loser, there are also winners.

We invest the great majority of our capital in these defensive property sectors in business-friendly states that enjoy the most repricing potential. You need to be selective. Feel free to join us for a 2-week free trial to access all our Top Picks: seekingalpha.com/...

Have a great day

@Jussi Askola Thanks for the statistics. I was worried that readers wouldn't be aware of that issue.
@Jussi Askola what are your thoughts on O and WPC?
I’ve been a member of both HYL AND HYI....I remember when you were super high on MAC....With some or most of their covenant problems behind them, and the price being in the 12 area, it would appear that you have soured with management.. I owned MAC and was fortunate when I sold .. no skill involved.. what happened????
Jussi Askola profile picture
@tclick1076 Thank you for your question. Note that we are still bullish on MAC and own a position in our Portfolio. The covenant issue may be solved, but we are yet to see the definitive agreement. This should help market sentiment. An investment like MAC requires a lot of patience. Our thesis makes it clear that this is a 5-10 year story. If I can help with anything else, let me know.
can collect 4.5% dividend while waiting
@Jussi Askola Hi Jussi! Concur with your assessment. We’ve been selling puts/calls on MAC since August on the position we hold, drving our effective cost on MAC to just below $7. I grin to think what this stock should be selling at in 15 years! I’m a very patient man!
Zucks profile picture
As you did not discount Lisa Beilfuss’ inciteful, and disturbing, column in this weeks Barron’s, on specifics regarding individual debt, you may by your next one. In sum, if the markets ever decides if the levels of personal and sovereign debt (and nonperforming loans) are longer reasonable, then the markets may not be reacting as you hope. For now, I agree on the compressed cap rates at least for certain desirable assets (see Latest NNN newsletter) but remember you pay (and borrow) for the bottom line. Again, it’s a game of who gets in and out before the market changes. Too bad, but all of those lawsuits on unpaid development loans in the NY Metro area demonstrate not even smart millionaires can time the market. (Maybe we’ll luck out and get deflation). I may buy one more REIT, I bought KIM, HTA, MAC, and HASI, after the downturn, though I sold the later after it doubled, but it would be one that has good chances of not tanking as much if there is a sudden reversal. WPC and several others you cite may be OK, but it may only be for the short term. Thanks for the articles though.
Jussi Askola profile picture
@Zucks Thanks for sharing your thoughts.

You write that: "Too bad, but all of those lawsuits on unpaid development loans in the NY Metro area demonstrate not even smart millionaires can time the market. "

It is impossible to time a pandemic. This was a black swan.
@Zucks Thank you very much for pointing to Lisa Beilfuss' article ("Put Aside Inflation. Debt-Fueled Growth Is the Real Wild Card." on Apr 9). Probably one of the most important articles I'm to read this year.

However, my takehome is different to you.

My summary: if growth slows, Fed debt becomes an issue, and huge inflation (hyperinflation) may result. Current readouts on growth may be too optimistic.

My takehome: if hyperinflation kicks in, real estate values will go way up.

Do you disagree?
Luca Stein profile picture
What is your opinion on non-reit real estate stocks such as VNNVF in Europe?
Do you think it is - the geographical aspect is not important in my question- reasonable to invest in non-REIT real estate stocks? To be honest I would personally be happier to invest in real estate that does not even pay a dividend. VNNVF offers a stock dividend as an option for example.

I would be interested what you think about it, considering you just talked about REITS and not real estate companies using diffrent "legal framework".
Jussi Askola profile picture
@stock 345 Thank you for your question. I think that companies like VNNVF already trade at high valuations. There are better opportunities in the US today. They are still 5 years behind in terms of yield compression.

With that said, we own a German non-REIT real estate company in our International Portfolio at High Yield Landlord. Feel free to join us for a 2-week free trial to access all our Top Picks: seekingalpha.com/...
Robert Morie profile picture
Obviously, some REIT sectors will do well. But in terms of real estate overall there is: Trouble in paradise.

The tax changes proposed will stop the safety of real estate.
The killing of the 1031 exchange will stop the trading up on assets.
The 44% capital gains tax, will chill the market.
Good companies and good real estate Un leveraged will be the holding pattern.
I assume we will look like the EU in 2 years.
My biggest fear is NYS rent control hitting commercial.
@Robert Morie wouldn’t an increase in cap gains tax lead to less selling, and thus, even higher stock prices?
Jussi Askola profile picture
@Robert Morie

1) 90% of REITs invest in defensive property sectors such as e-commerce warehouses, data centers, farmland, manufactured housing etc.
2) Removing the 1031 gives REITs a competitive advantage and lowers competition from private investors. REITs pay no corporate tax.
3) REIT balance sheets are stronger than ever at below 40% LTV on average.
4) If the US looks like the EU in two years, that would mean that the US has significant upside from here. Cap rates are much lower in Europe.
dinkydow profile picture
@Robert Morie Yes, Robert. The "Progressives" (read socialists) are picking up City Council seats and it's just a matter of time before commercial RE is plagued with control and interference. All these Progressives know how to do is cut pieces off the pie for their constituents but know nothing about how to bake the pie, nor do they care as long as their pie-fed constituents keep advancing their public office careers. Soon the pieces will be all eaten with nobody around to bake another pie. You see their mentality in the way AOC and her crew drove Amazon and 25,000 jobs (eventually 40,000+ over time) out of Long Island City. I own small industrial properties properties in Brooklyn and Queens and am quite worried. If it were possible to do a 1031 from those properties into a diversified REIT I would.
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