Strong Balance Sheets and Long Leases Help Large REITs Withstand Rising Rates

Fortress balance sheets with investment grade ratings help protect dividends through lower financing costs. Realty Income is a good example.
Well-laddered debt maturity profiles isolate refinancing risks and preserve cash flows. Alexandria Real Estate has no near term maturities.
Long lease terms reduce tenant turnover costs and cash flow volatility. Realty Income's average lease is 9.6 years.
Small cap REITs face tightening bank lending, so larger REITs have an M&A advantage. STAG Industrial plans $3B in deals.
Higher rates have shifted bargaining power to tenants, so long leases protect landlords. Office REITs like Alexandria face more risk.

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Relevant topic timeline:

8/11/2023

REITs Vs. BDCs: A Lesson In Contrarian Investing

Main financial assets discussed: 1. Real Estate Investment Trusts (REITs) 2. Business Development Companies (BDCs) Top 3 key points: 1. REITs and BDCs are both required to pay out at least 90% of their taxable income to avoid corporate-level income taxes. 2. REITs are fundamentally borrowers of debt, while BDCs are fundamentally lenders of debt. 3. Rising interest rates are a headwind for REITs and a tailwind for BDCs, while falling interest rates have the opposite effect. Recommended actions: Based on the analysis provided, the recommended action would be to **buy REITs**. The author believes that sentiment is currently stronger for BDCs and that REITs are undervalued. They argue that interest rates are likely to come down in the future, which would benefit REITs. However, they do not recommend selling BDCs and suggest holding onto high-quality BDCs in one's portfolio.

8/15/2023

Pro REIT: A Compelling Entry Point In Canada's Battered REIT Environment (TSX:PRV.UN:CA)

Main financial assets discussed: Pro REIT (TSX:PRV.UN:CA) Top 3 key points: 1. Pro REIT is an industrial-focused REIT with a strong asset base, backed by robust leasing activity, a favorable geographic breakdown, and reliable revenues from strong tenants. 2. The industrial segment of the Canadian REIT market is thriving, with low availability rates and high rental rates, which bodes well for Pro REIT's growth potential. 3. Pro REIT is currently trading at a discount to its historical pricing multiples, as indicated by its low P/B ratio, suggesting potential upside for investors. Recommended actions: **Buy**. The article presents Pro REIT as a compelling investment prospect, highlighting its strong fundamentals and growth potential. The discounted valuation and favorable market conditions make it an attractive opportunity for investors.

8/22/2023

VNQ ETF: I'm Building My Own Market-Beating ETF

The author presents a well-diversified six-stock REIT portfolio that has consistently outperformed the Vanguard Real Estate ETF (VNQ) since 2005, with a 14.1% annual return and a lower standard deviation, suggesting that building a REIT portfolio tailored to individual preferences can beat VNQ's performance without elevated risk.

8/27/2023

Got $1,000 and Want to Bump Up Your Passive Income Stream? Check Out These 2 Real Estate Investments

Investing in specialized real estate investment trusts (REITs) like Medical Properties Trust and American Tower can provide a reliable stream of passive income through dividend payments.

9/7/2023

Realty Income's Share Price Drops to 1-Year Low Despite Strong Fundamentals and 5.6% Dividend Yield

Realty Income's shares have hit a one-year low, but the REIT's strong operating performance, dividend coverage, and diverse real estate portfolio make it an attractive investment with a 5.6% dividend yield.

10/1/2023

Prolonged High Interest Rates Pose Risks for REITs with Near-Term Debt Maturities

This article mentions two specific REITs: Realty Income (NYSE: O) and Medical Properties Trust (NYSE: MPW). The author's suggestion is that investors should be cautious with REITs that have unfavorable debt maturity profiles, as there is a risk of expensive refinancings and increased interest costs. The author provides analysis and calculations for Realty Income and Medical Properties Trust to illustrate the potential negative impact of high interest rates on their finances. The key argument is that the recent drop in REIT valuations is justified, and the higher interest rates may last for a longer period of time, leading to expensive refinancing for many REITs. The author advises investors to select REITs with long debt maturity profiles to mitigate the risk of unfavorable equity dilution.

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Posted 9/17/2023, 9:37:28 AM