REITs Are Dividend Machines With 4.5% FFO Growth: Buy the Dip
While everyone's panicking about the 10-year yield, REIT fundamentals are quietly putting up numbers, and private buyers are circling at a discount
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Here's the thing about panic: it creates opportunities. While finance Twitter argues about whether the Fed will hike again and YouTube's doom-and-gloom crew stockpiles gold coins, REITs are quietly printing solid fundamentals that almost nobody is paying attention to.
According to a recent Seeking Alpha video making the rounds, public REITs posted net operating income (NOI) up 4.1% year-over-year, FFO (funds from operations) up 4.5%, and dividends up 4.1% in Q2, all this while the Fed was busy hiking rates by another 25 basis points. That's not a sector in distress. That's a sector doing cardio while everyone else is hyperventilating.
The rising-rate bear case for REITs is real but significantly overstated for the public side of the market. Here's the key stat most people miss: 90% of public REIT debt is fixed-rate. Private real estate owners carrying floating-rate debt and approaching refinancing deadlines? They're the ones actually sweating. Public REITs are mostly watching that movie from a comfortable distance.
And then there's the M&A angle, which is genuinely interesting. Private buyers are acquiring public REITs at 50 to 75 cents on the dollar right now. That's not a distress signal, that's a giant flashing billboard that says the market is pricing these things too cheap. When smart money with long time horizons starts buying at a discount, retail investors tend to notice about 18 months too late.
Top sector picks flagged by creators include healthcare REITs focused on senior housing (demographic tailwind so obvious it almost feels unfair), manufactured housing, and data center REITs. The last one is particularly spicy given that Generac just landed an $8 billion Amazon data center deal, more physical infrastructure demand means more real estate demand upstream. These things are connected.
Brookfield CEO Bruce Flatt said it best in a CNBC appearance: rate hikes are largely irrelevant for long-duration real asset investors, and inflation actually boosts revenues for real return assets. That's the REIT bull thesis in one sentence, and Flatt is not exactly a guy known for being wrong about real assets.
The rest of the market is busy staring at the dot plot. Meanwhile, private equity is quietly loading up the truck on public REITs at a discount. Make of that what you will.