You may have asked this question because at the beginning of the year or in 2021 you bought a few REITs you were told that they were great, mainly those high-quality ones like Realty Income (O), VICI, ARCC, MPW, and many others. And today, these shares are biting the dust. Reddit is full of people lamenting about their REITs declining so much that even the dividends can’t keep up. And long-term dividend growth investors turned into short-term gamblers.
So why are REITs falling? It is simple. Interest rates are the reason. And fear.
REITs are required by law to pay over 90% of their income to the shareholders to avoid taxes, so they rely on leverage – borrowing money, and issuing new shares to finance their acquisitions. In today’s high interest rate environment rising new capital may be problematic. So, investors are panicking and selling.
But I can assure you. This is a temporary phenomenon. The good REITs will eventually adapt. Inflation will keep slowing, and the FED at some point will start easing again. And REITs will recover. They did before, they will do it again. So instead of panicking, be buying.
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