Displaying items by tag: reits

(New York)

The real estate space—at least parts of it—have been red-hot since COVID began. Residential real estate in particular has done well, as the fall in interest rates has sent mortgage issuance surging. One area of residential that you might want to stay away from, however, is apartments. Investors have been shying away from the sector. For instance, the FTSE Nareit Equity Apartments index is down 21% to-date. The big fall comes despite landlords saying rent collections are strong. The reason why seems to be the big rent reductions in coastal cities. Landlords in New York, San Francisco etc have had to drop rents by 15% or more to keep tenants and attract new ones, and that figure doesn’t even price-in other incentives, like months of free rent.

FINSUM: Our view here is that COVID will likely lower demand for urban apartments, since the pandemic highlighted some of the weaknesses of densely populated buildings. However, occupancy overall seems likely to stay strong.

(New York)

Yields have almost never been lower. In some cases, they are at all-time lows. This has made income-oriented investments a real challenge. So how can investors get great yields right now? Well the first thing to bear in mind right now is that to get really juicy yields, one is going to have to take some risk. With that understood, take a look at mortgage REITs. Mortgage REITs took a huge hit when the pandemic began for fear of declining credit quality in the underlying mortgages. To-date they have only recovered somewhat. However, two of the biggest—Annaly (NLY) and AGNC Investment (AGNC)—are sporting yields of 13.5% and 10.6% respectively.

FINSUM: Mortgage REITs have obvious risks right now given ongoing unemployment, but with prices low and yields high, they look like they have a place in the portfolio.

(New York)

It might seem a bit counterintuitive right now, but that may be exactly why it is a good bet. REITs have been beaten up pretty badly, and on the surface they seem likely to stay that way. Offices, retail, and other parts of the commercial real estate world look to remain weak, but Citi’s private bank thinks there is value in the sector. As to their role in a portfolio, Citi says REITs “are a way to play the U.S. economic recovery and global economic recovery without being too concentrated in the Microsofts of the world, and to add to portfolio yield on top of that while we wait for that recovery”. REITs are yielding about 7% on average and the market has been so beat up that they look underpriced relative to the value of their underlying assets.

FINSUM: The key here is either broad long-term exposure, or shorter tactical exposure to sectors that don’t look likely to be hurt (e.g. industrials, which benefit from growth in ecommerce).

(New York)

For those interested in dividend investing, REITs have always been a key area. While rate sensitive, they can also provide strong and steady income streams. REITs may seem particularly risky as a whole right now because of the ongoing reckoning in commercial real estate as a result of the pandemic, but there are still some good opportunities to be had. The reason why is that REIT dividends, which have fallen 20% since the beginning of COVID, have likely hit their floor. JP Morgan says “that the current 3.5% dividend yield for the REIT group should be sustainable at this point.” Some of JPM’s best REIT picks right now include Brandywine Realty Trust (BDN, yielding 7.6%), Four Corners Property Trust (FCPT, 5.5%), Welltower (WELL, 5%), Medical Properties Trust (MPW, 6%), and W.P. Carey (WPC, 6.3%).

FINSUM: As obvious as it is to say, in our view, the key to REITs right now is the area of real estate they focus on. Mall REITS—probably not, storage/industrial RETS—much better.

(New York)

An event happened this week in the commercial real estate space that feels as though it might be seen as a canary in the coal mine for the forthcoming real estate crisis. The largest (and probably most famous) mall in the US—Mall of America—just fell behind on its $1.4 bn mortgage payments. The owner of the mall, which features over 500 stores and a theme park, missed its mortgage payments in both April and May, reports the Financial Times via Wells Fargo documentation. The owner, called TripleFive Group, has reported to Wells Fargo that it has suffered hardship because of COVID. Presently, nationwide about 1 in 5 loans bundled in CMBS are now on “watch lists”.

FINSUM: For context here, Macerich, which is one of the biggest mall owners in the country, disclosed that is has only collected 18% of rent it is owed in May.