REIT and Real Estate Stocks

About REIT and Real Estate Stocks

REITs are an income sector that behaves like a bond with a property attached, and that is exactly how they trade. Because they must distribute most of their taxable income, the yield is the point, and because the yield is the point they compete directly against government bonds. Rising rates hit them twice, raising borrowing costs and making the dividend look less attractive next to a risk-free alternative.

Do not treat the sector as one thing. Office has structural problems that remote work did not create but certainly accelerated, and cheap office REITs have been value traps for years. Data centers and towers have been the opposite, riding demand that has nothing to do with the property cycle. Apartments, storage, industrial and retail all answer to different demand and repricing speeds.

Lease length is the mechanic that explains most of the differences. Storage and apartments reprice within a year, so they pass inflation through fast and fall fast when demand softens. Net lease and tower contracts run a decade or more with fixed increases, which is safer and means the rent cannot catch up when inflation runs hot. One other thing: use funds from operations rather than earnings per share, because depreciation makes reported REIT earnings close to meaningless.

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