What Will Happen To REITs In A Recession?

seekingalpha06-27

Many investors fear that REITs will crash if we hit a recession.But I expect the opposite.As weird as it may sound, I think that a recession would benefit REITs. Ahmad Bilal/iStock via Getty Images ...

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Ahmad Bilal/iStock via Getty Images ...</p>\n\n<a href=\"https://seekingalpha.com/article/4700753-what-will-happen-to-reits-in-a-recession\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>What Will Happen To REITs In A Recession?</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWhat Will Happen To REITs In A Recession?\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-27 19:45 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4700753-what-will-happen-to-reits-in-a-recession><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Many investors fear that REITs will crash if we hit a recession.But I expect the opposite.As weird as it may sound, I think that a recession would benefit REITs.   Ahmad Bilal/iStock via Getty Images ...</p>\n\n<a href=\"https://seekingalpha.com/article/4700753-what-will-happen-to-reits-in-a-recession\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"IE00BLSP4239.USD","symbol_name":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis USD Plus","start_time":0,"source_url":"https://seekingalpha.com/article/4700753-what-will-happen-to-reits-in-a-recession","article_id":"2446406539","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/2042302119/image_2042302119.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2446406539","pubTimestamp":1719488700,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Many investors fear that REITs will crash if we hit a recession.But I expect the opposite.As weird as it may sound, I think that a recession would benefit REITs.   Ahmad Bilal/iStock via Getty Images ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"IE00BLSP4239.USD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis USD Plus","IE00BLSP4452.SGD":"Legg Mason ClearBridge - Tactical Dividend Income A Mdis SGD-H Plus","BK4220":"综合零售","BK4535":"淡马锡持仓","EPR":"EPR不动产","IE00BFSS7M15.SGD":"Janus Henderson Balanced A Acc SGD-H","SG9999013999.USD":"UOB UNITED GLOBAL HEALTHCARE FUND (USDHDG) INC","BK4538":"云计算","BK4080":"零售业房地产投资信托","BK4559":"巴菲特持仓","LU0238689110.USD":"贝莱德环球动力股票基金","LU0234570918.USD":"高盛全球核心股票组合Acc Close","BK4550":"红杉资本持仓","LU0456855351.SGD":"JPMorgan Funds - Global Equity A (acc) SGD","LU0072462426.USD":"贝莱德全球配置 A2","IE00B19Z3581.USD":"Legg Mason ClearBridge - Value A Acc USD","LU1023059063.AUD":"BGF WORLD HEALTHSCIENCE \"A2\" (AUDHDG) ACC","BK4234":"特殊用途房地产信托","BK4122":"互联网与直销零售","NNN":"NNN REIT INC","BK4231":"零售房地产信托","AMZN":"亚马逊","LU0289739699.SGD":"AB INTERNATIONAL HEALTH CARE PORTFOLIO \"A\" (SGD) ACC","LU0080751232.USD":"富达环球多元动力基金A","CFA.SI":"NikkoAM-STC Asia REIT","IE00BMPRXR70.SGD":"Neuberger Berman 5G Connectivity A Acc SGD-H","LU0308772762.SGD":"Blackrock Global Allocation A2 SGD-H","LU0321505439.SGD":"Schroder ISF Global Dividend Maximiser A Acc SGD","PFE":"辉瑞","LU0234572021.USD":"高盛美国核心股票组合Acc","BK4548":"巴美列捷福持仓","WSR":"Whitestone REIT","ARE":"亚历山大房地产","IE00BWXC8680.SGD":"PINEBRIDGE US LARGE CAP RESEARCH ENHANCED \"A5\" (SGD) ACC","LU0061474705.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN \"AU\" (USD) ACC","LU0130102774.USD":"Natixis Harris Associates US Equity RA USD","VNQ":"不动产信托指数ETF-Vanguard","PSTL":"Postal Realty Trust, Inc.","CFA":"VictoryShares US 500 Volatility Wtd ETF","LU0158827948.USD":"ALLIANZ GLOBAL SUSTAINABILITY \"A\" (USD) INC","BK4554":"元宇宙及AR概念","BK4532":"文艺复兴科技持仓","LU0276348264.USD":"THREADNEEDLE (LUX) GLOBAL DYNAMIC REAL RETURN\"AUP\" (USD) INC","AMC":"AMC院线","BK4108":"电影和娱乐","IE00BFSS8Q28.SGD":"Janus Henderson Balanced A Inc SGD-H","BK4534":"瑞士信贷持仓","BK4533":"AQR资本管理(全球第二大对冲基金)","BK4007":"制药","BK4566":"资本集团"},"translate_title":"经济衰退时房地产投资信托基金会发生什么？","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"WSR":1,"ARE":1,"VNQ":1,"PSTL":1,"PFE":1,"NNN":1,"AMC":1,"CFA":1,"CFA.SI":1,"EPR":1,"AMZN":0.6},"content_text":"Many investors fear that REITs will crash if we hit a recession.But I expect the opposite.As weird as it may sound, I think that a recession would benefit REITs.   Ahmad Bilal/iStock via Getty Images In a recent market update, we explained that we might be headed into a recession. This has led many of you to ask us how this will affect REITs (VNQ). Generally, a recession is bad, of course. REITs benefit from a strong economy and therefore, all else held equal, a recession would hurt most REITs. But here's my reasoning for why I think that a coming recession will be beneficial for most REITs: 1) REITs are recession-resistant: Most REITs earn cash flow from long-term leases and use little debt, so they are not heavily impacted by recessions. Take the example of NNN REIT (NNN): it has 10+ year-long leases and its rents are pre-set and will keep on rising even in a recession. Its tenants enjoy a ~3x rent coverage, and they operate mostly in defensive industries. Therefore, it is unlikely that it will experience significant lease defaults. After all, not even the pandemic did that, and this was the worst possible crisis for a REIT like NNN.   NNN REIT I used a net lease REIT here to illustrate my point, but the same is true for most property sectors. Leases generally have many years left on them, and tenants will rarely rethink their entire real estate footprint because of 1–2 years of slight GDP decline. Most property sectors are not that sensitive to the broader economy, and a slight drop in GDP is barely even noticed. Good examples include healthcare REITs, cell tower REITs, manufactured housing REITs, farmland REITs, etc... Pfizer (PFE) likely won't try to negotiate out of a 5+ year-long lease with Alexandria (ARE) just because we go into a recession. The demand for lab space just isn't heavily impacted by a recession. Similarly, Postal Services won't try to vacate post offices leased by Postal Realty Trust (PSTL) just because there are temporarily fewer shipments during a recession. Whole Foods (AMZN) will not default on its lease with Whitestone (WSR)... Even a weaker, more cyclical tenant like AMC (AMC) is unlikely to stop paying its rent to EPR Properties (EPR) if it suffers for a year, as it knows that it will need these assets over the long run.   Whitestone REIT  You get the point. Most major property sectors are not that cyclical, and most tenants of commercial properties understand that recessions are temporary anyway. They make real estate decisions based on their long-term needs. This explains why REITs have historically outperformed the broader stock market during recessions. They typically generate positive returns during late cycles and only drop slightly during recessions. If you include the gains of late cycles, share prices are more or less flat:   Cohen & Steers So barring a major unforeseen economic crisis, the coming recession likely won't have a major negative impact on REIT fundamentals or their share prices. There are some exceptions, of course, but most REITs are quite resilient to recessions. 2) Valuations are already discounted: Context matters a lot. A recession could, of course, cause a sharp sell-off if REITs were priced at expensive valuations due to the expectation of rapid growth. But it is the opposite today. REITs are already discounted, trading at their lowest valuations in over a decade relative to the broader stock market:   Principal Asset Management And importantly, REITs are discounted because of one main reason, and that is the recent surge in interest rates. But what will happen to interest rates if we go into a recession? This is our final and most important point. 3) The reason why REITs are discounted would disappear: Times of rapidly rising interest rates commonly lead to recessions... ... And recessions then lead to sharp interest rate cuts. This has been consistently true for the past decades:   NumberNomics We doubt that this time will be different. Interest rates will again likely be cut, and this will be huge for REITs because it will entirely change the narrative of the market. Today, investors are avoiding REITs because interest rates are high and many fear that they could rise even further. But as interest rates return to lower levels, the reason why REITs are so heavily discounted will be removed, and I expect investors to rapidly return to the REIT sector. Suddenly, they will start to see the value in REITs. And best of all, we don't need interest rates to return to zero for REITs to rally because their rents have risen considerably recently even as their share prices crashed. Bottom Line So, do I think that a 1-2% drop in GDP will cause REIT share prices to crash further? No, I don't. In fact, I expect the opposite. I think that it would lead to an epic rally because it would change the entire market narrative about REITs. Most REITs are good defensive plays during recessions, but their valuations are today heavily discounted because of fears of rising interest rates.  If you now remove those fears, today's valuations will likely rise significantly higher.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446406539"}