REITs can help recession-proof your portfolio.
Investing in real estate investment trusts during a recession can make stock market dips easier to bear for investors hedging against volatility. REITs allow access to investing in properties without the burden of direct ownership. But are REITs safe during a recession? Short answer: Yes. “REITs are a great way to shore up your investments and recession-proof your finances because they’re like the mutual funds of the investing world,” says Melissa Brock, money editor at Benzinga. “When you invest in REITs, you invest in large-scale real estate — office buildings, hotels, resorts, warehouses and mortgages — and instead of investing in one commercial building that could take a tumble during a recession, you’ve diversified your assets.” With economic uncertainty looming, these are the best REITs to invest in for a recession.
Welltower (ticker: WELL)
The health care REIT sector can offer stability when the economy enters a downturn. Todd Schoenberger, senior research analyst and director of research at Wellington & Co., says Welltower is a good buy because health care is a hot sector right now. “The baby boomer generation makes REITs like WELL terrific investments to have now and into the next decade.” As the largest health care REIT in the U.S., it primarily invests in senior housing, assisted living facilities, post-acute care facilities and medical office buildings. WELL offers investors a decent dividend yield of 3.8% and has a “hold” recommendation. Revenues for the second quarter of 2019 notched about $1.3 billion, while earnings for that same period totaled $137.7 million.
Weingarten Realty Investors (WRI)
Weingarten Realty Investors invests in retail shopping centers in states stretching from Washington to Maryland, many of which are oriented around a supermarket anchor store. That could be a good investment during a recession if consumers more frequently buy food to prepare at home, rather than dining out. WRI has a current dividend yield of 5.6% and is considered a hold move for investors. Earnings per share for the second quarter soundly beat expectations and with shares currently trading at around $28, it could be a bargain buy for investors. In terms of risk, the biggest threat to WRI and similar grocery-focused REITs in a recession could be online grocery retailers such as Amazon.com (AMZN) moving into the grocery delivery market.
Public Storage (PSA)
Public storage REITs are not completely recession-proof but they are more recession-resistant, says Patrick Healey, founder and president of Caliber Financial Partners.”With a recession, it’s harder to get a mortgage, making it more suitable many times to rent,” he says. The demand for rentals can lead to a higher demand for self-storage if renters can’t always accommodate all of their belongings at home. Public Storage is the largest of four publicly traded self-storage REITs in the stock market. With the PSA continuing to expand its footprint into new markets, it’s currently rated as a buy move for investors. The REIT’s 3.3% dividend yield is modest but stable and its balance sheet boasts an extremely low debt load, which bodes well when a recession hits.
Digital Realty Trust (DLR)
A recession doesn’t necessarily dampen innovation and as new technology develops, infrastructure REITs such as those focused on data centers, cell towers and distribution centers can benefit. “These real estate sectors are in the center of several big trends,” says Sean O’Hara, president of Pacer ETFs Distributors in Philadelphia. That includes 5G, streaming, e-commerce, artificial intelligence and the “internet of things.” Digital Realty Trust offers exposure to data centers, a market that’s currently experiencing a boom as more companies seek out hi-tech computing solutions. Though considered overvalued, DLR is a buy right now, paying back a respectable 3.3% dividend yield to investors. The last five years have seen the REIT’s price climb steadily from $70.27 to $129.06.
W.P. Carey Inc. (WPC)
W.P. Carey is a net-lease REIT investing in commercial properties in the U.S. and Europe. The REIT’s portfolio includes a mix of retail, warehouse, industrial, office and self-storage properties, offering broad diversification to real estate investors. In September, WPC increased its quarterly dividend to just over $1 per share, with the current dividend yield sitting at about 4.6%. Based on the quality of the REIT’s assets compared to its pricing, it could be considered an undervalued option for investors who want to buy into net-leasing ahead of a recession. W.P. Carey missed the mark on estimated earnings per share for the first and second quarters of 2019, but its tenancy structure could offer consistent returns in a downturn.
Equity Residential (EQR)
Apartment and multifamily housing REITs can make sense for a recession for one simple reason: People always need a place to live. “Multifamily properties are the most resilient type of real estate asset as they generally have lower total rent declines and more rapid post-recession rent recovery,” says Dan Palmier, president and CEO of UC Funds. Equity Residential owns apartment housing in some of the country’s most in-demand rental markets, including New York, San Francisco, Boston and the metro area of Washington, D.C. Despite some recent volatility, the REIT’s share price has held steady since August, with investors reaping a 2.6% dividend yield. EQR has a buy rating currently, though investors should be aware of how a recession could potentially impact rental rates in the larger housing markets where this REIT invests.
American Tower (AMT)
Like data centers, cell phone towers could persevere in the face of a recession as demand for these services may not waiver. “Consumers aren’t going to stop using their phones just because the economy hits a rough patch,” says Robert Baillieul, head of investment research for IncomeInvestors.com. “With the upcoming rollout of 5G mobile technology, carriers will have to spend billions beefing up their networks and most of these investment dollars will flow to cell phone tower owners.” American Tower is one of the largest global REITs, with cell tower properties across several countries, including the U.S., Brazil, France and India. Its dividend yield of 1.6% is on the lower side but it remains a “buy” based on its long-term bullish outlook.
The best REITs during an economic slowdown:
— Welltower (WELL)
— Weingarten Realty Investors (WRI)
— Public Storage (PSA)
— Digital Realty Trust (DLR)
— W.P. Carey Inc. (WPC)
— Equity Residential (EQR)
— American Tower (AMT)
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