A lot of you have an interest in REITs, however regrettably it is not that simple to buy those – here are the crucial factors for purchasing REITs.
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0:00 REITs Essential ELEMENTS VNQ
3:45 MPW Stock
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Sempre ben druze Sven, grazie per il servizio
In Europe yields for residential buildings in tier 1 city centres have been around 3%. Currently, if lucky these REITs can get refinancing at 5% rates. The faith of these REITs depends on if there will be change in monetary policy before major debt maturities and the pricing power of rents to offset some of the interest cost hikes. In commercial real estate yields are often much higher and there might be some opportunities.
But commercial real estate is also getting more problems with rising home office workplaces.
@Gregor Simon True. Commercial includes also shopping centers, malls etc. It always depends on the specific REIT to see what is the FFO and how different interest rates and vacancy rates impact it. Need to do proper research and MAYBE there is one good. I definitely wouldn’t throw my money blindly into commercial REITs.
@Ville Hyytiäinen With online retail on the rise, they are not without problems either. In Germany, Galeria Kaufhof and Peek & Cloppenburg, two department store chains that have been established for years, have filed for insolvency.
Great video and explanation about REIT risks, thanks Sven!
I love the video and the analysis, to me now the REITs best guess is: will they collapse or not? Because if they do not go bankrupt and have a solid enough financial balance, I don’t care they are at risk now, longterm 50 years into the future people will still need dwellings for all sort of commercial and residential operations, so thinking in the very long term is basically picking the survivors and wait
makes sense to me, tricky when your business model is based on the hope that interest rates will remain forever low and you will be able to refinance. I think that if they were smart and they wanted a company at the end they would do something similar to corecivic or geo group. I’m not invested in either of those either, but may at some point, they face similar risks but what is interesting is that their game has become very different, its can we pay back the debt and get to stable limits, they’re wiping out huge chunks of it and plan to do so for several years, which in theory will mean share holders will gain equity and perhaps one day once again enjoy a check in the mail. They’ve destroyed their share price, and cut distributions, but are doing what they need to do so they will have a company at the end. Crazy times to be sure but given the right moment when everyone else is heading for the hills investors who are hopeful there will be a tomorrow will win the day. Thanks for the video.
15:30 agree with you. Difficult times ahead. Or the system breaks or the inflation will eat us.
I appreciate medical properties trust analysis. Very good analysis.
Excellent video Sven! Very relevant warning for retirees looking at income investments to not just look at the high dividend from such REITs, but to understand the nature of the business model and the impacts of higher interest rates.
Old debt gets eaten up by inflation but costs very little while new debt is expensive. This results in less new development projects thus FFO can increase with inflation – the demand is high – no question about that. I would say if you not bought these reits at elevated prices it’s a very comfortable situation. only problem is over-leverage – so check balance sheets and debt schedules.
thanks for sharing!
Great video. There is also the problem of higher energy prices in Germany. Who knows how many of the tenants can’t afford to pay rent after the next service charge settlement (Nebenkostenabrechnung). What do you think about other industries with high debt? I’m thinking primarily of the telecommunications companies that have taken out large loans to build networks. Can they compensate for increased interest rates by adjusting prices?
Thank you for the analysis Sven, MPW was a stock recommendation from another youtuber. Now the stock is even at a lower price from your recording, at $7.75
Fantastic insights Sven – made it clear to me why Blackstone won’t allow investors to exit, they are hoping and praying for a pivot by Mssrs. Powell and Laggard in the next year or two? …great fees for Blackstone through lock-up of investors!
Sven, thanks for pointing out the leverage in REIT sector. Although leverage is one of Munger’s “three L’s”, it is also a blind spot for many investors, from individual investors to those in financial ivory tower designing “value indexes”. Many value indexes become overburdened by overleveraged, indebted companies, underperform inevitably, then the academic choir sings hymn of market-is-efficient, value-is-dead, debt-doesn’t-matter (Miller-Modigliani) and so forth.
How should we think of a company’s debts when gauging its intrinsic vallue, especially given the high level of uncertainties in future interest cost? Would you simply avoid indebted companies at all cost? or do you some thresholds below which some debt burdens are accepted (e.g. interest cost below a certain % of operating profit; debt below a certain % of book value)?
Thanks Sven. Great presentation on REITs!
Great explanation Sven. It is better to buy your own whatever even garage or tiny apartment than buying REITS. Or just keep buying SCHD and VOO and keep it simple. I like to handpick my stocks just as a learning process but now after my first year of investing in stock market I tend to keep allocating more to index funds and maybe leave just a portion like one third or so in individual stocks. Also considering all the uncertainty I think it makes sense to invest a portion of portfolio to preciuous metals. Basically making a portfolio that can weather any storm…Ray Dalio has a really good explanations about this and generally about macro and all things related to investing. For all of you reading this that are on the same boat as I am just starting the investing journey don’ t forget that the no 1 investment is investing in yourself.
as I dont have much time to analyze every company out there I usually take historical data for any etf or mutual fund and see how they perform, overall reits, small cap,mid cap, large cap are doing really well better than having money under the pillow =)
Great Video Sven, I was actually looking at Vonovia myself. It could do great if interest rates go down, but if they dont, it might already be fairly priced!
Thanks, Sven! Vonovia is awashed with debt and there are a couple of more risks: (1) 2% rental cap in major cities in Germany will impact cashflow in mid-term; (2) changing social sentiment about large home-owners might lead to potential buy backs from federal/regional governments at “a fair price” as they stated. Doesn’t look good.
Great video Sven. In terms of Vonovia, we should also take the green politicians headwind into account. Possible ban on gas heating and forced renovations in regards to energy compliance from German government will further detoriorate the situation for Vonovia.
Nice Video! One note to Vonovia. Vonovia is in the real estate business, but no real REIT like MPW!