Cheap REITs May Pay Big Dividends Later

Consider overseas options.

By + More

Many investors have included public and private REITs (Real Estate Investment Trusts) as part of their diversification strategy. This has richly rewarded them, as REITs have handily beaten the S&P 500 by over 60 percent over the past three years.

Many investors have included public and private REITs (Real Estate Investment Trusts) as part of their diversification strategy. This has richly rewarded them, as REITs have handily beaten the S&P 500 by over 60 percent over the past three years.

With this tremendous growth in certain REIT sectors, it has become harder and harder to find discounted commercial REITs that offer significant future growth potential.

REIT investors have to search high and low for undervalued sectors. Multi-family REITs have performed so well, as an example, that investors may want to look at taking some gains (because the valuations have become so rich) and redeploying capital into other beaten-up sectors. With the exception of single-family real estate and maybe office buildings, most commercial real estate sectors have made a strong comeback here in the United States in recent times. Because of this resurgence, value-based REIT investors may be highly rewarded longer-term by looking beyond our borders.

Many countries around the world have adopted the REIT structure, effectively opening their doors to U.S. REIT investors. I believe that there are two provocative options for deep-value REIT investors:

Emerging Market REITs. Amazing population growth is taking place in pockets around the world, especially in certain emerging markets. Increased population means increased demand for healthcare, industrial, housing, and retail facilities. It will pay to be picky when it comes to investing in EM REITs because there are several EMs (China comes to mind) that are way overheated.

European REITs. European REITs, in general, are trading well below their intrinsic asset values. This vulnerability may create what could be an incredible buying opportunity like what we saw here stateside in 2009. One analyst from the Amsterdam-based firm Eurocommercial Properties recently said, “REITs in Europe are trading at an average discount to their net asset values of 29 percent.”

With some courage and a little research, you may get the best bang for your buck by booking some of your gains here in the U.S. and exploring overseas real estate.

Robert Russell is CEO & CIO of the Ohio-based Russell & Company, a private wealth management firm specializing in helping affluent individuals ages 45 and up create and preserve their wealth. He co-hosts a radio show, authors The Rob Report blog, and is a frequent contributor to FOX Business and CNBC.

Securities offered through Kalos Capital, Inc., Member FINRA, SIPC. Investment Advisory Services offered through Kalos Management, Inc., 3780 Mansell Rd. Suite 150, Alpharetta, GA 30022, (678) 356-1100.  Russell & Company is not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc.