NTST - 3 Reliable Recession-Ready REITs

April, 15 2023 07:00 AM NetSTREIT Corp.

2023-04-15 07:00:00 ET

Summary

I’m glad I’m not an economist, because if I had to predict when the most predictable recessions would be, I would have failed miserably by now.
I’m fairly certain that the delayed timing of this next recession is not a matter of “if” it will be happen, but “when” it will.
I picked these three net lease REITs because I know that rain, sleet, or snow, they will perform in practically any environment.

When I was growing up, I thought it would be cool to be a weather forecaster, mapping out the next big snowstorm or tropical depression. So many people in the world rely on accurate weather forecasting and I’ve always had great respect for weathermen and women who do this for a living.

Predicting recessions is a completely different story.

As I began research for this article, I googled recession forecasts, and I came up with these opinions:

“If we go into a recession, it is not likely to happen before the late fall or early winter . The recent events in the financial sector are not major as most banks are solid and didn’t decide that having a balance sheet that looks like savings and loans makes sense. The issue is inflation and will be the issue for the next two to three years. The Fed has to squeeze it out and a soft landing is a nice thought but not as important as lower inflation.” Joel Naroff, Chief Economist at Naroff

“Slowing labor market conditions and high interest rates are expected to push the economy into a mild to moderate slowdown over the next year. Economic resilience, especially from the consumer, has pushed out recession expectations. The expectation is for the recession to be Federal Reserve induced, which is an easier recession to recover from than a balance sheet recession, which is not in the forecast.” Yelena Maleyey, Economist at KPMG

“ We expect a recession in 2023 , and while incoming data for the first quarter have shown a resilient economy thus far, there have been signs of slowing activity. Coupled with the likelihood of tighter financial conditions brought about by developments in the banking sector, economic activity will likely slow sharply over the next few quarters.” Mike Fratantoni, Chief Economist At The Mortgage Bankers Association

I’m glad I’m not an economist, because if I had to predict when the most predictable recessions would be, I would have failed miserably by now. And I’m fairly certain that the delayed timing of this next recession is not a matter of “if” it will be happen, but “when” it will.

When the Federal Reserve pushed interest rates to a record high of 19%-20% in December 1980, unemployment remained relatively stable — until July 1981, when it began a 17-month surge. Higher rates hit the economy with a lag, meaning it often takes a full year per each rate hike to impact the financial system.

But again, there’s still a chance, albeit modest one, that we could avoid a recession all together, but that appears to the long shot.

I think you would agree with me that I found my passion as a REIT forecaster (not a weather forecaster) and that’s partly due to my love for real estate investing, as well passion for predictability.

I’ve simply become a creature of habit.

I wake up every day at 5:00 am and head to the gym for an hour-and-a-half workout and then I grab my skinny vanilla latte with one oatmeal (with Whey powder). I then travel to my office to read the morning news (on Seeking Alpha) and begin to chat with my friends on Seeking Alpha.

This happens five days a week, almost like clockwork – except this week when I was sidetracked with COVID (I’m back to 100% now).

I’ll be doing the same routine next week, next month, and next year, and regardless of when the next recession hits, my routines will not change. My brain is wired for patterns of repeatability and that’s also how my investment strategy works.

There’s no need to get too cute, especially at this stage in the cycle, where the odds are elevated that we will soon enter a recession. I don’t need to tune into CNBC, Fox Business, or Bloomberg to get rattled with fear and greed headlines. Nope.

I prefer to chat (on Seeking Alpha) alongside the income-oriented army about the latest dividend increases, or simply watch the grass grow.

Sounds boring right?

Realty Income ( O )

Realty Income is a real estate investment trust (“REIT”) and is one of the most reliable and consistent REITs you can own. Realty Income was founded in 1969 and went public in 1994. They have been investing freestanding, single-tenant commercial real estate for the last 54 years and generate rental income under long-term triple-net lease agreements.

As of December 31, 2022, they owned or held an ownership interest in 12,237 properties covering approximately 236.8 million square feet of leasable space with a weighted average remaining lease term of 9.5 years.

Out of their total properties, 12,111 are leased for an occupancy rate of 99.0%, while the remaining 126 properties are available for lease or sale. Realty Income operates in 84 separate industries and are located in all 50 U.S. States and internationally with properties in the United Kingdom, Spain, Italy and Puerto Rico.

98.2% of their properties are single-tenant while the remaining properties are multi-tenant. On average, their annualized rent is approximately $14.55 per square foot for the 12,111 leased properties in their portfolio.