What Are Real Estate Investment Trusts Preferred Stock? How To Make Money With Real Estate Investment Trusts Preferred Securities (Real Estate Investment Trusts Preferred Stock)

When investors seek to take advantage of publicly listed real estate opportunities, they often favor traditional REIT common stock to gain exposure. This makes sense — from Oct. 1, 2008 through Sept. 30, 2018, US REIT common stock has provided attractive returns coupled with income generation, potential diversification benefits and a potential hedge against inflation. However, we believe US REIT preferred stock may offer a unique opportunity for investors to access real estate like returns with even higher income (and lower volatility) versus traditional REIT common stock. A real estate investment trust (REIT) is a company that owns (and typically operates) income producing real estate or real estate related assets.

Preferred stock is class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.

Understanding US REIT preferred securities

REIT preferred stock is a type of hybrid security with both equity- and bond-like characteristics. Within the capital structure of REIT companies, preferred stocks have a senior claim to earnings and dividends versus common stock but are generally junior to corporate bonds. The dividends paid on REIT preferred stock are often considerably higher than REIT common stock and shares are generally issued at a par value (often $25). While REIT preferred shareholders have no voting rights, they can often benefit from investing when issues are trading at discounts to par. REIT preferred stock is generally callable after five years from the date of issuance, at which point management reserves the right to redeem the shares at par. This five-year non-call period provides the potential not only for income, but also capital appreciation. The five-year non-call period also gives investors a more certain return opportunity over the time period, which may be an additional benefit.

Why do companies issue REIT preferred stock?

So why do REIT companies issue preferred stock at all given the options of simply issuing common equity or traditional corporate debt? First, when REIT companies issue preferred stock (versus traditional corporate debt) they are often given more favorable treatment by rating agencies. This allows companies to showcase lower leverage levels to prospective investors and analysts. Second, REIT preferred stock provides companies with a unique source of capital. While these shares are generally callable after five years at par, company management reserves the right to keep the shares outstanding in perpetuity. A broad array of REIT companies offer preferred stock, including those that operate in sectors focused on residential, office, retail, industrial, self-storage, data centers, infrastructure, healthcare and lodging. While the universe of US REIT preferred stock is relatively small by number of issuers and total capitalization, the benefits to investors have historically been quite compelling.

A comparison: US REIT preferred stock versus US REIT common stock

Over the last ten years – since the global financial crisis in October 2008 to the present – REIT preferred stock has outperformed REIT common stock with roughly half the volatility. The higher level of income generated by the preferred shares, coupled with the potential for capital appreciation for discounted securities, has allowed this segment of the capital structure to generate excess returns.

Over the past ten years, US REIT preferred stock has outperformed US REIT common stock

Over the last ten years, ZARZAR LAND has also observed that US REIT preferred stock has tended to outperform REIT common stock during periods of rising interest rates. We believe that the higher level of yield spreads versus the 10-year Treasury and other preferred sectors have allowed these securities to insulate themselves more to periods of rising interest rates.

US REIT preferred stock has tended to outperform REIT common stock during periods of rising rates

Given the yields of US REIT preferred stock today (which generally span from 5% to 8%), investors have the right to question the sustainability of these distributions. Unlike financial preferreds, which have experienced certain periods of double-digit levels of payment defaults, since 2000 the US REIT preferred universe has never seen a year with more than a 1% level of missed payments. In the past 18 years, the average annual default rate for US REIT preferred stock has been a modest 0.25%, reflecting the stable and predictable cashflows generated by real estate-related companies over the period. And in the last four calendar years there have been no defaults in the broader US REIT preferred universe at all. We also believe that convertible REIT preferred securities may create even better tracking relative to REIT common stock and may provide more robust protection against rising interest rates than non-REIT preferred stock.

How Billionaire Investors Protect Their Wealth & Fortune

Above: How Billionaire Investors Protect Their Wealth & Fortune.

It can take a lifetime to build a fortune like Warren Buffett or Ray Dalio. But, as all billionaires know, there is always risk present in the stock market, and even though a catastrophic geopolitical or financial event is very unlikely, it is important to be prepared for anything.

The World’s Biggest Real Estate Bubbles In 2019

Courtesy of: Visual Capitalist

Above: The World’s Biggest Real Estate Bubbles In 2019.

The World’s Biggest Real Estate Bubbles In 2019

With the current stock market bull run reaching nearly 10 years in length, it’s understandable that many investors are nervous about the end of the party coming sooner than later. However, as UBS notes in its latest report, there is also growing concern about another prominent bubble that has been in the works since the aftermath of the financial crisis.

Large amounts of easy money have fueled real estate bubbles in the world’s major cities, and the Swiss investment bank UBS now sees the property markets in six global cities as being at risk.

The Biggest Real Estate Bubbles In The World.
The Biggest Real Estate Bubbles In The World.

Hong Kong tops the “Real Estate Bubble” index this year. Any city with a score over 1.5 is considered at “Bubble Risk”, and right now those include two cities from Canada (Vancouver and Toronto), one from Asia (Hong Kong), and three from Europe (Amsterdam, London, and Munich in Germany). It is also very important to note that there are four cities that score just under the 1.5 real estate bubble threshold: Stockholm, Paris, San Francisco in California, and Frankfurt in Germany.

Above: The Most Expensive Real Estate In The United States: San Francisco Or New York?

Whether it is a real estate housing bubble or not, many real estate investors agree that San Francisco’s housing situation is still a crisis. In the San Francisco Bay Area, approximately 60% of all rental units are in rental controlled buildings, and the median single family house price is an incredible $1.7 million United States Dollars.

About ZARZAR LAND

ZARZAR LAND was founded on December 1998 with the simple mission of giving interested investors with limited finances and/or expertise access to quality real estate investment opportunities. ZARZAR LAND is an innovative and prestigious land group that works closely with various government agencies and institutions. Discover more at:

http://www.zarzarland.com

Which Cities Hold Africa’s Wealth?

Africa’s Evolving Economy

The economy in Africa is on the rise, and financial hubs are beginning to slowly emerge. While Africa has traditionally played a minor role in the world market and global economy, the continent is coming into its own as a hub for financial services and entrepreneurship. Africa’s growing elite has added approximately 19,000 new millionaires over the past decade, with total private wealth totaling approximately $2.3 trillion United States Dollars. An easy way for investors to invest in Africa’s growth is by purchasing the iShares MSCI South Africa ETF (exchange traded fund) through a stock broker such as Charles Schwab or TD Ameritrade.

Courtesy of: Visual Capitalist

The iShares MSCI South Africa ETF (exchange traded fund) is listed on the New York Stock Exchange with the symbol “EZA” and gives investors exposure to large and mid-sized companies that are located in South Africa. The iShares MSCI South Africa ETF (exchange traded fund) seeks to track the investment results of an index composed of South African companies that can benefit from Africa’s expected phenomenal growth during the next few decades.

The five wealthiest cities in Africa are located in three countries:

1. Johannesburg, South Africa ($276 billion)
Founded in the Witwatersrand Gold Rush of 1886, South Africa’s City of Gold is a hub for financial services, professional services (law firms and consultancies), construction, telecommunications, and basic materials.

2. Cape Town, South Africa ($155 billion)
One of South Africa’s three capital cities, Cape Town’s major sectors include real estate, financial services, retail, and tourism. Cape Town has the highest prime residential rates on the continent at US$6,100 per square meter, similar to cities such as Washington, D.C., or Berlin.

3. Cairo, Egypt ($140 billion)
A hub for Africa and the Middle East, Cairo’s major sectors include real estate, construction, financial services, and basic materials.

4. Lagos, Nigeria ($108 billion)
The clearing house for 80% of Nigeria’s imports, major sectors include basic materials, real estate, construction, telecommunications, transport, and financial services.

5. Durban, South Africa ($55 billion)
Home to the biggest shopping center in Africa – complete with 350 stores, 70 restaurants, 18 movie theaters, an IMAX theater, an indoor climbing wall, and a skate park designed by Tony Hawk – Durban’s major sectors include real estate, finance, healthcare, construction, retail, and transport.