HCohen schreef op 25 september 2022 09:48:
Interest rates are not just hiked for the sake of hiking them.
They are being hiked because inflation is at a 40-year high and needs to be brought back under control.
Inflation has many positive effects on REITs:
It inflates the debt of REITs away.
It complicates new development projects, reducing new supply.
It increases the replacement value of existing properties.
It increases the growth of rents.
It makes buying real estate less affordable for people, and it makes sale and leaseback transactions more compelling for companies.
So yes, interest rates are rising and this has a negative impact on REITs, but this is because inflation is sky-high, and inflation has a clear positive impact on REITs.
Therefore, the question should be: which is greater?
The positive impact of inflation or the negative impact of rising interest rates?
Historically, the positive impact of inflation has been far greater and this explains why REITs tend to perform so well when rates are rising. Here is another source to show how REITs benefit from high inflation:
Today, REIT balance sheets are stronger than ever with low LTVs(-URW nog niet - )
and long debt maturities. Therefore, REITs should perform even better during times of rising rates than in the past.
Why hasn't this been the case so far in 2022? Why have REITs performed so poorly, despite all the evidence that they should perform better?
It is tough to answer because that's the nature of the market. It is impossible to explain short-term market movements or to time the market. You may think that the market should drop, but it may rise, and vis-versa.
The same is true today. We think that REITs should be rising, but they have dropped. Is this a cause for panic?
No, it is the exact opposite. It is an opportunity for us to buy REITs at historically low valuations in anticipation of a future recovery.
Adding further evidence to that is the fact that Blackstone (BX), the most sophisticated private equity firm in the world, has been aggressively accumulating REITs in 2022. They have bought over $30 billion of them so far this year, which is huge, and they recently explained in a conference call that they are seeing the best opportunities in the REIT sector at the moment:
"The best opportunities today are clearly in the public markets on the screen and that's where we're spending a lot of time." COO of Blackstone
In other words, private real estate values are up, but REITs are down sharply. As a result, REITs are now priced at a steep discount relative to the value of the real estate they own. Historically, it has always paid off to accumulate REITs after a selloff. Will this time be different?I doubt so, and this is why I am accumulating them aggressively, just like Blackstone.