February 21, 2024

 

(WITH TECH TOPPY, INVESTING IN REITS NOW COULD BE REWARDING)

February 21, 2024

 

Hello everyone,

Five stocks – Apple, Microsoft, Nvidia, Amazon, and Meta Platforms – appear to be driving global markets.  Euphoria about artificial intelligence and its potential to bolster profits have seen these stocks rally strongly in the past year.

This lack of diversification is concerning as it puts the U.S. and the world at risk.  All it takes is for one or two of these names to stumble or waver, and the ramifications could be felt globally.

The party around these stocks may wind down at the end of this year. 

Make sure you are diversified in your portfolio. 

Is it a good time to invest in real estate?

I’m talking about REITS or direct ownership.

Inflation and interest rates have put significant pressure on several sectors – especially real estate.  But if we are forecasting interest rates to decline over the next 12 months, now might be an opportune time to invest. 

Commercial properties occupied by tenants such as drugstores, retailers, food outlets, and gas stations are not overly sensitive to economic conditions and can post gains even if a recession hits.  One name to consider here is Realty Income.  Its portfolio includes over 13,000 commercial properties with a 98.8% occupancy rate.

Kevin Brown, equity analyst at Morningstar points out that Realty Income has a triple net lease structure, which means their tenants are responsible for everything – all expenses that can be generated by the property.   Furthermore, Brown says that the company is part of the S&P 500 Dividend Aristocrat index and has raised its dividend payout for 25 consecutive years.  The REIT has a 5-year average dividend yield of 4.5% and is trading at around a 10% discount to net asset value – a key measure of a REIT’s value – according to FactSet data.

There is also an opportunity in data centers.  There is a supply shortage now in conjunction with the severe demand spike due to AI.  Data-centred focused REITs include Prologis and Equinix. 

Prologis – which owns almost 800 properties globally, including several data centers – is trading at a premium of around 4% to net asset value.  Equinix with 250 data centers, is trading at a premium of around 17% according to FactSet data.

As the baby boomer generation ages, we can also think about senior housing facilities.  Welltower has exposure to senior housing, outpatient care facilities, and care spaces.  Ventas is another REIT which has over 1,400 properties including senior housing facilities and outpatient medical buildings across the U.S., U.K., and Canada.  According to FactSet Ventas is trading at a discount of around 3% to its net asset value, while Welltower is trading at a premium of around 55%.

“Personal finance is only 20% head knowledge.  It’s 80% behavior!”  Dave Ramsey

Happy Wednesday.

Cheers,

Jacquie