Value in the REIT Wreck

The following is an excerpt from With the US Economy in a Deep Freeze, Is There Value in the REIT Wreck?

REITs are normally a quiet corner of the market. Because they tend to pay high dividends, they’re a favorite of income-starved retirees.

Well, I’m not speaking in hyperbole when I say they got their heads bashed in last month. The Vanguard Real Estate Index ETF (VNQ), a popular way to track the sector as a whole, was down 44% at the lows. That’s bad, but individual stories get so much worse.

Consider Realty Income (O). This is as close to a bond as you can get in the stock market. The REIT owns a collection of high-traffic retail properties – things like pharmacies and convenience stores. There is nothing interesting or sexy about Realty Income or its properties, and that’s exactly the point. Its investors love the stock precisely because it’s boring and gives them no drama.

Realty Income — boring, stodgy, fuddy-duddy Realty Income — was down 55% at one point and is still down close to 50%.

This is a stock that has raised its dividend for the past 90 consecutive quarters — 23 years and counting — and sailed through the 2008 meltdown. And its shares were down by more than half.

I don’t expect widespread bankruptcies or long-term impairment across the REIT sector. Sure, some of the smaller, weaker players could fail, and I’d probably stay away from mall REITs given that malls were already in bad shape even before this crisis struck. I also believe a lot of these companies could end up having to cut their dividends, at least temporarily, if their tenants are unable to pay for a few months.

But the key here is temporarily. High-quality real estate that was in demand before the coronavirus blow-up will still be in demand a year from now.

If you’ve been waiting for your chance to snap up real estate at 2008-caliber prices, this is it. I don’t expect this volatility to disappear in a day, but if you’re willing to stomach it, you can buy a basket of solid REITs at prices we may never see again in our lifetimes.

To read the full article, see With the US Economy in a Deep Freeze, Is There Value in the REIT Wreck?