Watch Out For REIT Sectors!
Real estate investment trusts, or REITs, are great investment choice for income seekers, especially in a low-yield world that hasn't gone unnoticed, with investors pushing the asset class materially higher in current years. With Vanguard REIT Index ETF, you will be given an idea of few niches to worry about.
New Gaming and Leisure properties Inc. is relatively betting REITs, and alike MGM Growth Properties LLC alike which is a younger firm. The primary risk here is that a REIT owning casinos is an unproven story.
On the superficial level it sounds great, yet all of us have not seen what happens in a slump. Maybe gamblers cease to gamble and rent coverage gets a small tentative. However there is a conceivably bigger issue in the long run. Although MGM Growth Properties includes popularity growth in its name, it is not sure how much promising growth there really is in the space. Great properties continually go to be concentrated in select fields and how many companies are willing to break with absolutely great assets. Say for example, MGM Growth Properties' mother held back its best properties when it rotate the REIT off. A great property could arise for sale if its owner is in distress through trying times. This means that perhaps the casino operator isn't such a great leaseholder to have. This story has not proven yet.
Another one big question mark for the REIT contrarian is the prison REITs like the Corrections Corp. of America and GEO Group Inc. The government is the main customer for the starters which can lead all source of problems. For instance, both of these REITs recently took a big fall awkwardly when the U.S. Justice Department declared it would no longer be using third parties to run its jails. Despite neither of the REITs was really goes to be wrack up too much by the DOJ's action, at least not immediately, it's quite clear that investors in the space don't understand what they possess by the reaction to the news.
Thus, not only that there is a heavy client-focused in the government, there is a conflict about what these REIT really are in the market world. That's a recipe for misfortune. The contrarian said he is not sure of how much growth potential there is in governing jails profit.
Last question to raise is CorEnergy Infrastructure Trust. This REIT owns the midstream assets in energy. It is not a huge problem in and of itself after all limited associations have owned such things for several years. It is something new to put them in a REIT. From a fee for service to rent it changes the model, in several ways this is better, but CorEnergy is the only REIT of its kind and well, it's being tested at present.
To alleviate what's going on is quite impossible for there is no way. The company's two largest customers are working through bankruptcy. Around 90% is accounted for these two customers of CorEnergy rental revenue.
Though both customers remain updated on their rent, if something should back out CorEnergy's unique strategy to midstream space could turn out to be a failed model. It is just not worth the risk for most investors.
Washington REIT, Government Properties Income Trust, and Farmland Partners are some of the companies that you need to know its REIT whether it is on risk.