In This Article:
Investors could turn to REITs (Real Estate Investment Trusts) as a counter to market volatility and economic uncertainty.
Wedbush Securities managing director of Equity Research and REITs Richard Anderson sits down with Catalysts host Madison Mills and StoneX senior adviser Jon Hilsenrath to speak more about how the Federal Reserve's interest rate forecast and economic projections could affect the REITs landscape.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
The REITs index holding on to gains so far this year as the Federal Reserve remains committed to just two rate cuts. Now this year investors may turn to REITs for some income generation amid market volatility. Here with more on the landscape, we've got Richard Anderson. He's over at Wedbush. Richard, always great to speak with you about what's going on in REITs in particular. Talk to me about how the Fed's path forward could impact some of the REITs that you're covering.
Well, first of all, uh nobody controls um the long end of the curve, right? So the the important thing for the REITs is where does the the 10-year reside? Um, you know, and and certainly some some implications from Fed policy impact that, but uh you know, what we've been seeing is the 10-year sort of trending down this year and that's good for the REITs that are dividend paying vehicles. And so we've actually seen out performance from the US REIT so far this year, which has been a welcome change over the past versus the past couple of years. And so it's creating some conversation for us with the generalist investors that are having a look to see if this is a sector that, you know, could could be a beneficiary of some rotation and that's that's where we stand today.
Yeah. And Richard, you sent over some top picks for several areas within REITs: industrials, multi-family, and senior housing. I guess I'm wondering for investors who are more on the retail side of things, who maybe don't have a ton of investor hygiene and are looking at REITs as a way to play real estate without owning a home themselves, which area and which top pick of yours do you think is best for that kind of investor?
Well, well, so there's a very obvious opportunity and it's important to make clear. Um, the REITs uh is it's an industry that shares a tax code, but it's made up of 15, 17 different industries that bear no resemblance to one of another. And that's that makes it interesting for my seat to to make decisions within the read industry. One of them is the senior housing space. And so senior housing really embedded into the healthcare REITs, um is benefiting from the post-pandemic recovery of occupancy. There is a wave of of of demand coming because there's so much in the way of, you know, the older generations growing at a faster clip than the rest of the population. The baby boomers will turn started turning 80 this year. Uh, so senior housing is a real obvious sector to own and maybe sleep well at night for the time being. And that's not to be confused with skilled nursing, which is a fully regulated sector that's that is funded by Medicare and Medicaid, which, you know, we have some concerns about where that's going. Senior housing is is private pay by the residents or the adult children that their caregivers. And there's a real opportunity there. Ventas VTR is a name we really like, as well as a smaller cap version of senior housing, National Health Investors NHI.
Richard, I want to ask you a little bit about the debt structure in the industry that you're covering. I imagine a lot of these institutions that you cover took out their loans when rates were very low in the early stages of COVID and right after. What's the rollover risk right there? At what point are we going to start seeing them rolling into higher cost loans? And are there any problems brewing on the financial front for in this arena?
Well, you know, one thing that's, you know, a saving grace, I think, in my opinion is the fact that there's so much financial liquidity in the system. And so while rates are higher, uh, you know, we're not we don't see it as a as an enormous risk. No question, refinancing risk has already played a role in in earnings growth over the past couple of years. And that will continue. That's that's just a fact of life. You're right that back in the heyday of low interest rates, the REITs locked in at the time extremely low rates that now are are likely to roll up. Um, and so, you know, two or three, maybe five percentage points of earnings growth is taken off the table because of this, and that would be, you know, 5% would be a very extreme level in terms of how this is all impacting things. And so, you know, it's an issue, but not a major issue in my opinion. And sort of priced into valuation as well.
Right.
Right. Absolutely. Richard, thank you so much for joining us. Appreciate it.
Okay. Thank you.
