It’s no secret that inflation is breaking record 40-year highs, as it just hit 8.5%. High inflation and other factors have led to an inverted yield curve in March 2022. With an inverted yield curve, short-term Treasury bonds have higher interest rates than long-term ones, which normally isn’t the case.
An inverted yield curve is often interpreted as an early predictor of a recession. The yield curve inverted before the 2001, 2008 and 2020 recessions. However, real estate investment trusts (REITs) can be a good investment during high inflation since they earn most of their revenue from tenant rents, which increase during this time.
All REITs aren’t created equal, and this guide shows you a few options that can help your portfolio withstand a recession.
What Are Publicly Traded REITs?
Publicly traded REITs are registered with the U.S. Securities and Exchange Commission (SEC) and trade on a stock exchange like the Nasdaq exchange or New York Stock Exchange.
Advantages of publicly traded REITs include:
Higher liquidity
Greater transparency
Lower barrier to entry
Two In-Demand Publicly Traded REITs 1. Digital Realty Trust
Data science is one of the most in-demand fields, which is predicted to have a job growth rate of 28% through 2026. One way to invest in real estate and data science simultaneously is via a REIT called Digital Realty Trust Inc. (NYSE: DLR). This firm acquires, operates and manages data centers in the U.S. as well as in 25 other countries.
The company is growing substantially since it acquired a major stake in a premier African data firm, Teraco. Digital Realty Trust outpaces its competition with a three-year net income growth rate of 72.8% and a relatively low debt-to-equity ratio of 0.84%.
2. Extra Space Storage
Since the COVID-19 pandemic, more people have moved, increasing the need for storage space.
Extra Space Storage (NYSE: EXR) is a publicly traded REIT that meets this demand throughout most of the U.S. In addition to personal storage space, customers can also store larger items like RVs, cars and boats.
Its stock price has grown by 56% since April 2021. Compared to the competition, it has a higher profit margin and a return on equity (ROE) of 52.40% and 29.18%, respectively.
Public, Non-Traded REITs
Public, non-traded REITs are registered with the SEC but don’t trade on major stock exchanges.
By not trading on exchanges, these REITs aren’t subject to daily stock market price changes, which makes it easier for fund managers to focus on long-term goals and can reduce risk and volatility. Registration with the SEC provides transparency.
Platforms like RealtyMogul and Streitwise help average individuals invest in public, non-traded REITs. With RealtyMogul, investors select from retail, office, multi-family and apartment complex investment options. Streitwise currently has one main offer, 1st Streit Office, which is currently composed of two class A commercial properties.
See also: How Do Private Equity Real Estate Investments Stack Up Against REITs?
Bottom Line
High inflation and an inverted yield curve can be signs of an upcoming recession. Investing in real estate, especially with REITs, can be a useful inflation hedge. Unlike fiat currency, real estate is a tangible asset, and rents rise during inflationary periods.
Publicly traded and non-traded REITs serve sub-niches like data science or healthcare. Perform due diligence before investing and realize that some of the more profitable REITs tend to serve high growth, in-demand sub-niches, including the data science and self-storage sectors.
Photo by Mona Sorcelli on Unsplash
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Source: https://finance.yahoo.com/news/top-reits-recession-proof-portfolio-154824768.html