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

Omicron: Very Bad News For REITs


  • The newly-discovered Omicron variant poses a significant threat to a number of REITs.
  • Hotels, malls, offices are the most heavily affected, but not for the reasons you might think.
  • While this is very bad news for a lot of REITs, it could actually be a blessing in disguise for other REITs that indirectly benefit from the crisis.
  • We highlight 3 that we are buying.
  • Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Learn More »

Bad news

pressureUA/iStock via Getty Images

A new hyper-contagious variant of the covid virus has been discovered. We don't have enough data to know how contagious it is just yet, but the early data paints a very bleak picture: It could be a multiple more

ENDING SOON - You can still join Seeking Alpha's largest community of real estate investors at the Lowest-Rate-Ever-Offered:

We are only offering 50 discounted spots on a first-come, first-served basis, and most of these spots are already sold out!

If you are still sitting on the sidelines, now is time to act! Start your 2-Week Free Trial and Save 20% on all our plans. Join us on an Annual Plan and Save an Additional 50%.

    Want Deep Discount? Start Free Trial

                       (46 spots out of 50 Sold Out)

This article was written by

Jussi Askola, CFA profile picture

Jussi Askola is the President of Leonberg Capital, a value-oriented investment boutique that consults hedge funds, family offices, and private equity firms on REIT investing. He has authored award-winning academic papers on REIT investing, has passed all three CFA exams, and has built relationships with many top REIT executives.

He is the leader of the investing group High Yield Landlord, where he shares his real-money REIT portfolio and transactions in real-time. Features of the group include: three portfolios (core, retirement, international), buy/sell alerts, and a chat room with direct access to Jussi and his team of analysts to ask questions. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of EPR; STOR; WSR; STAR either through stock ownership, options, or other derivatives. 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.

Relevant disclosure to presented performance: past performance is no indication of future results. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated, includes international REITs, and may at times invest in companies that are not typically included in REIT indexes. The performance of our portfolio is underrepresented because it is affected by withholding taxes on all dividends. This is not the only account that I own, but it is the first account that I created for the sole purpose of building track record and it is now over 5 years old, which is probably just enough to assess results. The performance is money-weighted.

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

Comments (93)

I’m out and about and see very little concern about the omicron variant. Sitting in a packed coffee shop at 2:30 PM today. Little variation in daily reported COVID cases. No new restrictions or lockdowns. The sky is not falling.
Jussi Askola, CFA profile picture
@WhitneyB Your opinion of the variant is irrelevant. Restrictions have been reimposed and those are real.
@Jussi Askola The market disagrees and finds your opinion irrelevant.
Jussi Askola, CFA profile picture
@WhitneyB I am referring to hotel, mall, and office REITs in this article in case you missed it.
cachinga profile picture
Any new restrictions are purely gov't control over people's actions and nothing to do with omicron which is pretty much harmless as reported by all who got it.
This seems like one of those “deploy your dry powder” moments on EPR, wish I had some.
Jussi Askola, CFA profile picture
@GreenguyMN I agree that EPR is cheap right now.
Like others have stated here, it's way to early to speculate on the doom and gloom of the new variant. Sadly though, speculation has been more rampant then ever with the start of this pandemic. Here's hoping that Omicron is the start of the weakening of the virus and we can all go back to living our normal lives.
Jussi Askola, CFA profile picture
@Macker007 I agree. However, restrictions are already being imposed and that needs to be taken into account.
metalhead profile picture
More bad news:

From my LinkedIn feed:

"So much for that return-to-office date. Google no longer sees Jan. 10 as a viable start to its formalized hybrid schedule in the U.S., as was previously planned. In an email to employees, the tech giant's security VP wrote they will reassess in 2022 when they might be able to commit to a “stable, long-term working environment.” The news comes as the omicron variant has been reported in a handful of places in the U.S. and companies continue to grapple with return-to-office plans."
CincinnatiRick profile picture
The problem isn't Omicron apparently. All indications are that the symptoms are mild by comparison...albeit more transmissible,,,akin to the common cold. It's something we can learn to live with...if those with a vested interest in paranoia will ever give it a rest.
Jussi Askola, CFA profile picture
@CincinnatiRick We don't really know enough yet to say that for sure, but yes, it is a possibility. Meanwhile, new restrictions are a real thing that we need to take into consideration.
CincinnatiRick profile picture
@Jussi Askola OK...point well taken. Even irrational and/or paranoid behavior will have an economic impact. And it can take a long while for facts to overcome it.
soral a raison profile picture
Someone in South Africa discovered a new cold virus with "mild symptoms" (her exact words). The entire world hyper-ventilates. Maybe our society deserves to disappear. Monkeys have more common sense.
Jussi Askola, CFA profile picture
@soral a raison No one knows at this point. What matters is that this uncertainty may further delay the recovery, lead to more restrictions, and hurt/benefit certain specific companies.
@soral a raison - We seem to be in an infinite "do-loop" of emerging COVID variant fear mongering. The media lives off yellow journalism these days that would raise even William Randolph Hearst's eyebrows. The reality in the article at the bottom of page 8 is ultimately far less scary than the headline on the front page. Meanwhile my EPR position languishes and drops. But I ain't selling, I'm in this for the long haul, while I'm grateful I collect a good dividend and live in Texas. Respectfully,

- Hoosier
None of our economic woes of the last 2 years have been brought on by the by a virus. Our economic woes are brought on by idiotic and tyrannical government overreach.
howard2374 profile picture
It appears to me as though STOR may not be such a good idea when one reads the company's profile on TD Ameritrade (granted it was written in Dec 2016 and a lot has changed since then):

... Its customers operate across a range of industries within the service, retail and manufacturing sectors of the United States economy, with restaurants, early childhood education centers, movie theaters, health clubs and furniture stores. The Company's portfolio includes investments in approximately 1,330 property locations operated by over 300 customers across approximately 50 states. The Company provides real estate financing solutions principally to businesses that own STORE properties and operate within the broad-based service, retail and industrial sectors of the United States economy.

Side comment: Companies should do a better job of keeping their 'Company Profile' up to date. After all, 31 Dec 2016, was almost exactly 5 years ago!
Jussi Askola, CFA profile picture
@howard2374 You may want to research a bit more before reaching a conclusion... PS: It is TD Ameritrade's job to update its platform.
Would you continue to hold VICI?
Jussi Askola, CFA profile picture
@Replicase Yes, it is one of our biggest holdings. Feel free to join us for a 2-week free trial to access all our Top Picks: seekingalpha.com/...
howard2374 profile picture
@Jussi Askola I hold both MGP and VICI. I'm buying MGP in lieu of VICI because: 1. VICI is issuing more shares in preparation for the deal to go thru. 2. There will be something like ~1.39 VICI shares for an MGP (which is not issuing additional shares) share.
Jussi Askola, CFA profile picture
@howard2374 Remember that there is however arbitrage risk in MGP.
Pablo profile picture
Overblown BS = BUY BUY BUY
Jussi Askola, CFA profile picture
@Pablo To be clear, I am buying. But it is important to not buy just anything. Feel free to join us for a 2-week free trial to access all our Top Picks: seekingalpha.com/...
For the life of me I do not understand the valuation of hotel stocks such as Marriott and Hilton. Before the pandemic I travelled extensively for work and all the major hotels in mid to big sized cities were always busy. Travel has picked up again this year, but none of these hotels are anywhere near as busy as pre-pandemic. How can investing in hotels be justified.
Jussi Askola, CFA profile picture
@Funnychef7868 Same here. I also don't expect business travel to ever fully recover and Airbnb has been gaining market share.

More buying opportunities!!

Never dived into the EPR and like pool some of you SA were hawking.
Jussi Askola, CFA profile picture
@cpr1200r100 We are actually bullish on EPR and bought most of our shares in the $20s and $30s. It has been a successful investment and expect more gains to come. With that said, there are risks that cannot be ignored.
Seeking Gain profile picture
Thanks, Jussi Am adding a few STAR every week.
SnufferBottle profile picture
I agree on your pick of REITs but disagree that Omicron is a negative on any timescale. Based on the sparse data that exists so far, it appears to be the mildest strain of the virus yet.

There is a chance that this is actually net beneficial. If it is both much milder than prior strains and more virulent that would actually be a way to develop herd immunity among the unvaccinated at a lower mortality rate. Let’s hope that’s the case. When the same spread of Delta was seen in India it was accompanied by stories of terrible suffering, thankfully that is not the case right now with Omicron.

I’ve been loading up the max during this drop, to the point of getting a margin call at one point yesterday. I believe the market had massively overreacted to the downside on re-opening REITs. I don’t think Omicron will have any long term impact (except maybe on office properties). Specifically I was stocking up on BABA, KLPEF, and EPR - I expect mid double digit returns on each over the next 5 years.
Jussi Askola, CFA profile picture
@Snuffer Note that the negative is mostly in the form of restrictions. I think you would agree that tighter travel restrictions affect hotel REITs as an example.
SnufferBottle profile picture
@Jussi Askola Hotels & office I agree there is a clear impact.

I'm not invested at all in hotels, and CIO (office) I'm fine with since a huge portion of the market cap consists of cash they will get for a life sciences sale + their management team is stellar.

Delta didn't really do much long lasting damage to Class A mall rents or EPR's non-theatre properties, VICI's casinos, or for that matter really anything triple-net lease REITs own outside of maybe theatres. I believe that Delta will prove to be a more deadly variant, and even that had minimal impact financially.

Can't speak to restrictions you see in EU but at least in the US everything is more or less open even including large music festivals in Chicago/SF/Miami/etc. Some areas like SF/NYC might impose stronger mask requirements, but complete lockdowns are simply not going to happen at this point even in those areas.
Jussi Askola, CFA profile picture
@Snuffer Good points. As you saw, I bought more EPR recently, so you know where I stand on that one. I would not be surprised if the volatility continues, however.
Actually picked up some GNL at $15 and $14. I know ppl hate that one but going for diversification.
Jussi Askola, CFA profile picture
@dkMazz Thanks for sharing. Note that GNL is poorly managed. That's the main issue with it
ypcheng profile picture
Jussi, while I do agree with what you said here, investment is not how much one will win but the amount one can afford to lose. The problem we all have at this moment is that we are running out of bullets. Should we overweight REIT now? This is the million-dollar question. Thank you for an excellent article.
@ypcheng Days like today with the market up 1.6% in the face of omnicron and fed hawkishness are great for taking chips off the table and getting 'more bullets'
Jussi Askola, CFA profile picture
@ypcheng Thanks for your comment. As you know, I am overweight in REITs, and if they keep dropping, I will soon be even more overweight in REITs.
ypcheng profile picture
@dkMazz The problem is capital gain tax as we are near the end of 2021. I have been selling the losers and buying the discounts. The next consideration would be the missing "opportunity" if we don't take the taxable gains.
Nice article Jussi.
I’m very comfortable with KMI, SPG, WPC, and WSR. The latter was most recent buy. KMI halved their dividend so I halved the position. Emphasis on southern location and open centers a retention factor.Cost basis around 10. Should have bought SPG under 100 but 147 looked less risky. High end malls attract wealthy clientele and high end wage earners. Never a recession with that crowd. WPC is a gem; warehouse and industrial bldg verses retail the key.
Thanks again.Enjoy following your work.
Jussi Askola, CFA profile picture
@jarco Thank you for sharing your thoughts. I appreciate your interest!
It´s just temporary. Added a bit of EPR yesterday, amid the drop.
DayTradeLongTerm profile picture
@Gladiator321 i did the same.

this variant , by all accounts ( although early) seems to be less severe.

it's all security theatre.
Jussi Askola, CFA profile picture
@Gladiator321 I agree that this is a good buying opportunity for most REITs.
Very Bad News For REITs

Wrong again Jussi.
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!

Related Stocks

SymbolLast Price% Chg
AMC Entertainment Holdings, Inc.
EPR Properties
EPR Properties PFD C CV 5.75%
EPR Properties CONV PFD 9% SR E
EPR Properties 5.750% CUM PFD G

Related Analysis

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.