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The REIT Meltdown Accelerates: Long-Term Investors Should Rejoice



  • REITs experienced a significant selloff after the Federal Reserve indicated that high interest rates will persist for a while.
  • Despite the market panic, or rather because of it, dividend investors should take this opportunity to buy shares in high-quality yet attractively valued REITs.
  • I discuss why it does not make sense to talk about how "REITs" will do this or that (despite doing it all the time myself), because the average isn't representative.
  • Instead of giving my usual pitch for the most incredible bargains among high-quality REITs, I instead discuss three REITs in my portfolio that have held up remarkably well amid the onslaught.
  • Looking for a helping hand in the market? Members of High Yield Landlord get exclusive ideas and guidance to navigate any climate. Learn More »
Real Estate Meltdown

LilliDay/E+ via Getty Images

Real estate investment trusts ("REITs") were absolutely crushed this week as the Federal Reserve indicated after their recent meeting that high interest rates are here to stay for a while.

What is striking about this selloff is that very little

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This article was written by

Austin Rogers profile picture

Austin Rogers is a REIT specialist with a professional background in commercial real estate. He writes about high-quality dividend growth stocks with the goal of generating the safest growing passive income stream possible. Since his ideal holding period is "lifelong," his focus is on portfolio income growth rather than total returns.

Austin is a contributing author for the investing group High Yield Landlord, one of the largest real estate investment communities on Seeking Alpha, with thousands of members. It offers exclusive research on the global REIT sector, multiple real money portfolios, an active chat room, and direct access to the analysts. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of CCI, ARE, EGP, AMH, IVT 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.

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 (288)

Austin Rogers profile picture
Thanks for reading! Whether you agree or disagree with me, if you appreciate the honest perspective and analysis above, please do me a favor and "like" the article. It really helps. Also, feel free to Follow me for similar articles in the future!
@Austin Rogers thanx for the article.
any comment on ABR?
Austin Rogers profile picture
@modelt I do own it but am not buying more at this time. There’s more pain to come for highly leveraged multifamily projects, and ABR will feel some of that. But I’m betting (by continuing to hold ABR) that they’ll be able to get through it with dividend intact.
@Austin Rogers thanx again...i am long ABR.C.
Are long term investors still supposed to “rejoice” while REITS continue to get bludgeoned?
Austin Rogers profile picture
@Harry Sack Sure, if you are still in the accumulation phase of your journey, or if you're retired with the ability to reinvest a portion of your dividend income. See my article published this morning: seekingalpha.com/...
SenoraMatadora profile picture
@Harry Sack Sure, it's called the Martingale system…double down after every loss…assuming infinite capital.
Ventureshadow profile picture
@SenoraMatadora ...also assuming lifespan that increases with each new long-term investment.
I bought 6 m and cmReits in the March to May period past. ABR, ACRE, BRSP, MFA, (added to) RC, and SLG. They are, even with the recent drawdown, all up substantially still with the exception at the moment of MFA. My YTC on the group is well over 14% and currently, I Drip ACRE and SLG. Sure, they could come down some more, however, longer term, they will give solid returns IMO. The interest rate dynamics just now are putting them back into bargain territory once again. When the interest rate situation stabilises, not even necessarily dropping substantially, these shares will too. In the meantime, I'm receiving an excellent income from the other 4 that I do not Drip. BTW, SLG just paid down $577 million of debt with a milestone payment they received on their property at One Madison Avenue. Debt management is their most important focus point going forward, that is true. Very good article, BTW.
Dean Jones Trader profile picture
Great article.
And I love charts ...
So just for shenanigans, I started looking at 20 year charts for many REITs - and interestingly, MPW and SLG charts look almost ... identical ... Both approaching or finally hit the 2008 - 2009 rock bottom lows from the last financial debacle.
- Ouch.
Austin Rogers profile picture
@Dean Jones Trader Great point. The fundamentals for both REITs look like garbage… but the prices have also plummeted to GFC lows, so maybe now is the time for value investors to be looking at them as buys. They’re not for me, but I get the value investor’s attraction to them right now.
Thanks for your article. All Sunbelt REITs, none of which I have, but their locations are a positive. Will put $IVT on my watchlist.
A chart is not voodoo. It reflects actual price variation through time and is a useful tool. It should certainly be used to manage risk while also considering sentiment and fundamental valuation. For example if sentiment is irrationally exuberant in the context of fundamental valuation and price has risen up to a long-term resistance level, a wise investor takes profits.
@cjk4-63 well said. Fundamentals can be off in accuracy, timing, or worse, both. Fundamentals also have the ability to completely ignore the technicals while the technicals inherently incorporate all views. best wishes
Should REIT holders still be rejoicing as their portfolio gets obliterated daily?
Austin Rogers profile picture
@Harry Sack No, they should be rejoicing because the buying opportunities keep getting better for long-term investors!
SenoraMatadora profile picture
@Austin Rogers Yes indeed play the Martingale system…double down after every loss…assuming infinite capital.

Euphoria reigns...
Austin Rogers profile picture
@SenoraMatadora Euphoria? In REITs? It's the opposite. I think it's better to invest when the market despairs than when it's euphoric.
dotcomken profile picture
I did not own any reits prior to September I have taken small positions in VICI, IIPR, ERPT, O, BXP, and STAG. I'll drip them for the next 10 years.
@dotcomken its the only way you will ever see a return from REITs.
SenoraMatadora profile picture
The WSJ has started a series on real estate. It has profiled San Francisco's travails and today it features Atlanta. Atlanta’s office-vacancy rate has increased to 14.7% from 11.5% at the end of 2019. Atlanta’s weakening office market is hammering the city’s hotels, particularly lodgings that rely on business travel and conventions. In the past four months, occupancy rates have declined while demand has fallen.

Hotel owners are giving up. Arden Group defaulted last year on its $98.2 million mortgage on the Sheraton Atlanta, a convention-oriented property. This year, Ashford Hospitality Trust is handing back the keys to its lender on a portfolio of hotels including the W Atlanta, a luxury hotel near Peachtree Center.

Meanwhile, Atlanta added more than 237,000 jobs the past two years, an 8.4% gain in employment, making it the seventh-strongest region in the country.

Go figure...

Austin Rogers profile picture
@SenoraMatadora Not all commercial real estate is created equal.
SenoraMatadora profile picture
@Austin Rogers Location, location, location. Add to that age, leverage and foot traffic.

Sadly in the current environment little real estate is creating inflation adjusted income.
We are going to have considerable inflation as the massive pay increases percolates through the system.
Don’t kid yourself, commercial real estate demand is down other than for the local governments housing the illegal immigrants which is inflationary. The sanctuary cities such as NYC have budget deficits, & California is also going to increase debt significantly- maybe get a bailout as they have in the past- remember?
Austin Rogers profile picture
@congressional trade researcher Actually, current wage increases are mostly just catching up to inflation. On an inflation-adjusted, per capita basis, since the beginning of 2022, wages have only gone up a little over 1% in total. Since the beginning of 2020, it’s more like 2-3% total.
Flipper2058 profile picture
Well said. The best defense of higher rates is reducing debt at all costs to assure an investment grade credit standing. Those REITs in denial will learn hard lessons imho.
Dividends need to be slashed.
Austin Rogers profile picture
@Flipper2058 I wouldn’t say that is the case for every REIT. For many, that would probably be the best capital allocation decision, but as in the case of WPC, shareholders would punish the REIT severely.
Flipper2058 profile picture
@Austin Rogers
Of course it is not every REIT.
VNO has 2 bonds, one cost 2.15% and the other 3.45%. They stockpile t bills ( or were). Why pay those down?
But cap ex is a serious issue not to mention debt walls for some
Joe Eifrid profile picture
I sold most my REITS earlier in the year, and now other to raise cash for year end tax selling buys. I think REITs will be even more attractive.
Stubborningly still holding OPI as a speculative trade. Bought after the dividend cut. Now that the merger failed with DHC I expected it would bounce. But, sold of dramatically since. Deep discount to book.
Austin Rogers profile picture
@Joe Eifrid I believe OPI is externally managed by RMR Group, though. They have a terrible track record when it comes to rewarding shareholders and having misaligned interests. It’s hard for me to see how investors will get interested in this name. Is there something I’m missing?
@Austin Rogers @Joe Eifrid RMR manages $OPI. The results speak for themselves.
glenart profile picture
The author has made an enormous assumption in his analysis. The assumptions are actually 2 fold. First, the infamous J Powell at the FED is correct. The economy is just dandy and can withstand higher rates for longer. Second, FED policy can't change on a dime. It can and will. There are huge storm clouds on the horizon for the US economy and these storm clouds are going to hit harder and faster than most believe. Remember this is the same J Powell who gave us inflation is transitory and then failed to supervise the banking system in 2023.
Joe Eifrid profile picture
@glenart "But his initial description of inflation as "transitory" quickly proved vexing, and at a press conference on July 28, 2021, he was asked pointedly what exactly he meant by it: "The concept of 'transitory' is really this. It is that the increases will happen. We're not saying they will reverse"
It was Janet Yellen who had a different take on transitory.
Flipper2058 profile picture
It doesn’t matter if Powell is right or not, it’s what he said and is doing that counts.
Those calling Powell wrong are on year two of being wrong. They miss the point, we have to go with what they do not some notion what we think he should do.
Austin Rogers profile picture
@glenart Actually, I agree with this wholeheartedly. Perhaps you missed this paragraph in the conclusion of the article:

“But the Fed's history of predicting their own future rate decisions goes completely out the window when the economic data takes a turn for the worst. Recessions have a tendency to ruin even the best laid plans. Though the market obsesses over what the Fed oracles say they are going to do next, the oracles' foresight is as limited and fallible as anybody else's.”
I havent looked as closely at BXP, but the prices MPW and SLG have gotten on recent asset sales is encouraging. As well as some of the other REITs I follow. I think the private sector is taking the bigger beating.
Mr. Gumbo profile picture
Many ppl bashing reits here will be sad they didn't buy 1-2 years from now.
SenoraMatadora profile picture
@Mr. Gumbo Good advice, I plan to buy 1-2 years from now when REITs hit bottom.
Austin Rogers profile picture
@Mr. Gumbo Agreed. But unlike how they are condescending to us now, we will be charitable and gracious to them if and when they realize in a few years that they missed their buying opportunity.

At least, that will be the goal.
@Mr. Gumbo No thy wont. The ones bashing REIT's today will be the same ones saying they bought 2 cents from the bottom and will be bragging about it but really didnt buy at all.
Watch the sharp edges on that falling knife.
SenoraMatadora profile picture
@MMShaw Ummm a knife only has one edge, a bayonet only has a point.
@SenoraMatadora ..ok.. ..dagger..
SenoraMatadora profile picture
@Trademaster51 A dagger is a fighting knife with a very sharp point typically designed or capable of being used as a thrusting or stabbing weapon.

The fundamental economics of America are changing, as the world financial center continues to migrate towards Asia with China in the lead. The traditional REIT investors are the last to know ...if ever they do.
SenoraMatadora profile picture
@Jim Postell China in the lead? 20% of young Chinese can't find a job and China's property development companies are insolvent. Hopefully we won't be following that "leader"...the Xi Who Must be Obeyed...
@Jim Postell You are a few years behind. Russia and China were hot during the last administration. Now, they are colossal failures.
Income4ever aka Cyclenut profile picture
@Jim Postell
I agree in principle about America is changing but tenets will continue paying their rents and reits will continue to pay dividends so I'm not sure what China and Aisa have to do with this
Dr.DaveR profile picture
Some quite questionable analysts on here have been promoting REITs since January 2022, saying every dip was a buy. None of them understood or (sadly) still do not understand the effects of rate hikes on the marco picture. The risk/reward still is not there, but for those that want to buy now at least be grateful that $MPW can no longer be listed as a buy at $20 like the worst on here were touting 2 years ago.
Austin Rogers profile picture
@Dr.DaveR I do think the risk-reward is more than adequate for a number of high-quality REITs. Take ARE, for example. It's at its lowest price-to-AFFO since the Great Recession and is expected ~6% AFFO per share growth this year, more next year. A similar story could be told about lots of high-quality, best-in-class REITs. I'm not talking about the sub-investment grade, higher risk REITs like MPW. I'm talking about many of the best REITs with the best real estate out there. I think a lot of folks are going to continue saying that the risk/reward looks bad even well after REITs have begun to rebound.
Excalibur5 profile picture
Could it also be the $1 quadrillion+ in unregulated off-balance sheet financial derivatives that has investors fleeing REITs?
SenoraMatadora profile picture
@Excalibur5 US$1 quadrillion+ ?

That's the notional value. Notional value is a term often used by derivatives traders to refer to the total value of the underlying asset in a contract. It can be the total value of a position, how much value a position controls, or an agreed-upon amount in a contract. Put simply, it is the face value that is used to determine payments on a financial asset. This term is used when describing derivative contracts in the options, futures, forwards, and currency markets.

It ignores offsetting positions and/or hedging.
SenoraMatadora profile picture
Thank you for a logical and coherent analysis of the current REIT retrenchment. You are correct as to the state of play and direction of the industry but I doubt that most here will appreciate your input.

They are in denial about the impact that higher interest rates will have on the looming wave of refinancing. They actually think that their dividends will not be effected and that the REITs that they own will somehow not be impacted.
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