Commercial REITs present deep value opportunities
The bull case argued for select commercial REITs is that they are trading at historically low multiples and high dividend yields despite possessing resilient underlying fundamentals.
The argument
The guest argued that high-quality triple-net REITs are trading at roughly 12 times funds from operations (FFO) compared to their historical average of 18 times. He pointed to companies with strong rent collection histories even during lockdowns as examples of businesses priced for permanent impairment despite only experiencing temporary pain.
The thesis, stress-tested
✓ What validates it
- ✓Stabilization or reduction of interest rates easing refinancing math
- ✓Consistent or growing FFO metrics in upcoming quarterly reports
▸ Risks discussed
- ▸Over-leverage on balance sheets
- ▸Exposure to adjustable-rate loans in a rising interest rate environment
- ▸Value-destructive activities forced by near-term debt maturities
Hear it yourself
"But most real estate investment trust, even like triple nets, like like an NNN or, or or an ADC. A lot of these are trading at much, much lower multiples than they historically have. Maybe it's 12 times funds from operations where historically they've been at, like, 18 times."
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