Do you invest in REITs?

Question

Does anyone invest in any publicly traded REITs? I have a list I'm considering, or have invested a couple grand in. I'm wondering what you think about REITs as strategy, and if you like it, which you are into...

Evan Polaski · Answer

@Jason Merchey, I don't.  A) my exposure to real estate as a ratio of net worth is already very high, so I hold equities that are not real estate related to balance that side of my portfolio.  B) While there are tax benefits regarding the corporate double taxation issue, that is generally priced in to the stocks and P/E ratios, and that is no compensation to pass through losses through a K-1 for direct ownership. C) If I want to gamble on consumer sentiment, which is what I consider all publicly traded equities, than I will at least gamble in an area with better appreciation potential.

C is the biggest reason.  Public equities are entirely driven by consumer sentiment with almost no value given to underlying dynamics.  The beginning of the pandemic was one example (all property sector REITs saw huge losses, even though no tenant even had a chance to miss a rent payment yet).  In the past recession, many REITs were valued far below their NAV for an extended period of time, which I never could understand why.

Jason Merchey · Answer

Right, gotcha. Thanks Trevor.

Trevor Ewen · Answer

@Jason Merchey

I wrote this post 6 years ago, but I still think the points have merit. Just keep in mind that the 'recent' data is not so recent.

Short points:1) Great for passive exposure to the real estate sector. Should be (at least) a small allocation in a portfolio.2) Does not come with all the upside of private. Higher correlation with the market. You're investing in a corporation, etc.

One other thing to take not of. REITs tend to be over-weighted on large-scale commercial assets. There are some innovative models, but think office buildings, malls, and industrial real estate. Of those three, I am only bullish on industrial at the moment. There are distressed opportunities in the other two, but I don't think we've reached a point of realism on urban realignment and office space. Malls have been in trouble for years, so there's that.

Jason Merchey · Answer

Thanks all for the comments. Yes I have a couple grand in ten REITs, so nothing major. The comments I most resonated with are the ideas that senior housing frightens me, office is a question mark, industrial is probably pretty solid but could be overbought, REITs have a beta of .6 to 1.2 (which provides a little opportunity to "buy low" but also can be a bit scary), and their diversification is pretty significant (vs a private syndication which obviously is a $50k or greater bet on one particular sponsor in one particular part of the country).

One thing I like about private placements is that you can get a better feel for the operator or the operator's track record. For example, take a huge-cap, index-like REIT such ticker symbol FREL. It's got Prologics, Equinix, Crown Castle, Avalon, Public Storage, and so on in it. That's incredible diversification, but when one looks into each of those huge companies, there are so many moving parts and details it's just overwhelming.

I really think of REITs as being a proxy for equities, more than I do, say, similar to one multifamily acquisition in Dallas TX. Two totally different strategies. They involve bricks and mortar and tenants, but are totally apples and oranges.

I think 2021 could be a little hard on REITs, but if everything gets ironed out as far as politics, covid, the economy, etc., 2022 could be more of an upswing. I wish I got into these REITs in April, but I guess it is what it is.

Andrew Tripp · Answer

Full disclosure, I'm not any sort of equities investment expert.  But I have some industrial (and other) REITS in my portfolio, primarily for liquidity purposes with some steady dividend income because the REITs have to distribute so much income to keep their tax-favored status.  They are subject to the same ups and downs of any stock market investment, but generally have held value pretty well through COVID because most REIT holdings are Class A properties.  And I understand the fundamentals.  They are a good way for an individual to get some exposure to Class A industrial real estate and stay liquid while doing it.  But because the risk is pretty low, not much upside in my experience.

Steve Morris · Answer

Well, most don't qualify for 1031 exchange, so that takes a bunch of money.  Otherwise, I guess look at them for potential income growth.  IIPR (MJ distribution/growth, but not retail) has been a home run.

Some stuff like senior housing has been hammered and reduced dividends, however, I think we've gotta be near bottom and Biden will prob be a lot more generous with Medicare money.

Other stuff like office (who know what happens with absorption post-Covid) and industrial (getting over-priced), not my specialty, but plenty of more knowledgeable opinions than mine out there.

Do you invest in REITs?

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