VICI - Don't Wait To Buy These 7% Yielding Sweet REIT Bargains

2023-10-26 07:30:00 ET

Summary

• REITs are down 33% in the 4th worst bear market in history. Outside of the GFC and Pandemic, REITs have never fallen more than 34%.
• There is a 97% statistical probability that REITs are within 5% of their final bottom.
• This is as close to "ringing a bell at the bottom" as you'll ever find on Wall Street.
• In the 1970s, rates doubled, and REITs soared 750% from 1972 to 1981 while the market was flat and lost to inflation. The speed of rate increases is what is crushing REITs. This coiled spring sector soars as soon as it slows down or stops.
• Here are seven blue-chip REITs averaging a 7% potentially safe yield that are almost 40% undervalued. They offer 73% upside potential within 2 years, 3.5X more than the S&P 500, and could possibly quadruple within the next decade, almost 3X better returns than the S&P consensus expects.

For weeks, I've pointed out that the REIT bear market is a historic buying opportunity for this high-yield sector.

If it seems like I'm pounding the table especially hard recommending the best blue-chip REITs right now, it's because I am.

Hear Me Now, Quote Me Later: Buy REITS RIGHT NOW!

REITs are down 33% from their record highs. That might seem like a normal bear market. And it is except for one thing.

(Source: NAREIT)

When REITs fall around 28%, you buy them. Case closed, mic drop, that's it.

If you aren't buying REITs at a 33% bear market, you're doing it wrong, and here's why.

Outside of the Pandemic lockdowns and capital markets melting down in 2008, REITs don't fall more than 34%. They just don't, never in history.

The Chicago Fed's financial stress indicator shows no signs of a financial meltdown.

St. Louis and Kansas City Fed show below-average financial stress.

The only thing that would justify REITs falling more than 5% more than they already have (-35% or more) is just not happening.

If it does, we'll see it in this data, consisting of 134 financial metrics updated weekly.

Interest Rates Only Matter To REITs Up To A 34% Decline

(Source: NAREIT)

If you think REITs will keep falling if rates keep rising historically, that's incorrect.

In fact, from 1972 to 1986, REITs soared about 750% while the S&P was flat.

From 1972, before rates started to double, to 1981, when the Fed drove rates to a record 20% and 10-year yields hit 16%, REITs quadrupled.

Yes, had you not predicted that average interest rates would double from 6% to almost 14% and bought REITs at the worst possible time, you would have quadrupled your money while the S&P lost value.

When rates are rising, it usually means a strong economy, higher inflation, and REITs raise their rents.

That's why there is no correlation between interest rates and REIT returns even going back to 1972 and the start of the stagflation hell decade.

If you could predict average 10-year yields with 100% accuracy, you would have predicted just 2% of REIT returns.

And only if you thought rising rates were ever so slightly good for REITs.

Why NOW Is The Time To Buy

Ok, so the historical data is beyond questioning. No long-term investor in history has ever bought REITs after a 33% decline and lived to regret it.

This isn't going to be the first time, even if rates start rising.

But just in case you are feeling like I'm asking you to step in front of a freight train, consider this.

Bill Ackman said earlier today that he covered his short bet on US Treasuries , sparking today's Treasury rally off earlier weakness that saw 10Y move above 5% for the first time since 2007. Ackman also said the economy is slowing faster than recent data suggest . This comes after the Pershing Square founder disclosed in August a short bet on 30Y Treasuries , arguing structural changes like deglobalization and energy would add to upside risks around inflation while supply dynamics would also push yields higher." - FactSet 10/23/23 (after 10-year yields fell 20 basis points within hours)

Bill Ackman is the famous bond manager who bought puts on the 30-year yield in case they rise to 5.5%.

It wasn't a huge bet; he wasn't pounding the table predicting that 30-year yields would soar at their fastest rate in 20 years.

Well, 30-year yields surged historically. Ackman made some good profits on those hedges, and now he's taking them off, and the 30-year yield is down to 4.99% as of 10/24.

If the only reason REITs have sold off in their 4th worst bear market in history is interest rates and interest rates stop going up? They don't even have to fall; they just have to stop going up, then guess what happens?

Terror and panic selling in REITs is what we've seen. Not because 5% interest rates make it impossible for REITs to grow.

• Average 10-year yield from 1950 to 2007 was 6%

But purely because the rate of increase in long-term rates has been staggering, stupefying, and the fastest in 20 years.

Stocks don't care about rates...they care about the rate of increase. The acceleration of rates. The 2nd derivative." - Thom Keane, Bloomberg Surveillance

Once rates stop rising or even slow down their rate of increase (likely right now), the only thing preventing a REIT rally is gone, and the ultimate coiled spring sector is off to the races.

What does this mean? Based on the historical data, there is a 97% chance that we are within 5% of the final REIT bottom.

Suppose you are an income investor interested in REITs and don't buy right now. And I mean today. There is a 97% chance you will regret it in 5 years (and probably just 1).

This is the closest you will get to someone ringing a bell at the bottom of a sector bear market. Don't wait; buy your favorite REITs today!

How To Find The Best High-Yield SWANs In A Scary World

Here is how I have used our DK Zen Research Terminal to find the best 7% yielding REIT blue chips to buy right now, at the 97% likely REIT bear market bottom.

From 504 stocks in our Master List to the best REIT aristocrats you can buy today.

All in one minute, thanks to the DK Zen Research Terminal. This is how I find all my investment ideas.

So, let's take a look at the highest-yielding non-speculative blue-chip REITs.

Don't Wait To Buy These 7% Yielding Sweet REIT Bargains Today

I've linked to articles exploring each REIT's investment thesis. Here, they are listed by yield.

1. Physicians Realty ( DOC)
2. Simon Property Group ( SPG )
3. Crown Castle ( CCI )
4. Four Corners Property Trust ( FCPT )
5. NNN REIT ( NNN )
6. Realty Income ( O )
7. VICI Properties ( VICI )

Fundamental Summary

• Yield: 6.6%
• Dividend safety: 85% very safe (1.75% dividend cut risk)
• Overall quality:
• Credit rating: BBB+ stable (6.71% 30-year bankruptcy risk)
• Long-term growth consensus: 3.8%
• Long-term total return potential: 10.3% vs 10.1% S&P 500
• Discount to fair value: 36% discount (very strong buy) vs 6% overvaluation on S&P
• 10-year valuation boost: 4.6% annually
• 10-year consensus total return potential: 6.6% yield + 3.8% growth + 4.6% valuation boost = 14.9% vs 10.1% S&P
• 10-year consensus total return potential: = 301 % vs 160% S&P 500.

Potentially quadruple your money over a decade while warning almost 7% safe yield growing about 4% per year.

Historical Returns Since 1998

9.7% yield in 1999 and 169% yield on cost today.

13.2% annual income growth vs 8% to 12% consensus today.

Consensus Total Return Potential Through 2025

If and only if each company grows as analysts expect and returns to historical market-determined fair value, this is what you will make.

Physicians Realty

Simon Property Group

Crown Castle

Four Corners Property

NNN REIT

Realty Income

VICI Properties

S&P 500

S&P 2 year total return potential is 21% or 9% annualized.

For the 7% yielding 36% undervalued REIT blue-chips? 73% upside potential and 29% annual return potential.

That's Buffett-like return potential the market can't hope to match, from blue-chip bargains hiding in plain sight...yielding 7% today!

Bottom Line: Don't Wait To Buy These 7% Yielding Sweet REIT Bargains Today

Let me repeat. Based on the historical data, there is a 97% chance that we are within 5% of the final REIT bottom.

That means there is a 3% chance that REITs will hit -35% or more from their record highs.

This is as close to a sign from the investing gods, a neon sign telling you to step up and swing at the ultimate Buffett-style fat pitch.

There is no financial apocalypse coming, in my opinion. The data from 134 financial metrics updated weekly is absolute on this.

There is no sign of a severe recession, just a mild one next year (possibly the mildest in history).

There is very little risk that rates go much higher than today, and as long as they stop rising at 30 basis points per week, DOC, SPG, CCI, FCP, NNN, O, and VICI are the best high-yield REIT buys you can make.

Buy these REITs today, and you'll thank me within a year or two.

For further details see:

Don't Wait To Buy These 7% Yielding Sweet REIT Bargains