All investments carry risk and it is important to  understand them. The current global situation of high inflation and rising interest rates would be the most obvious. It is causing the stock and bond markets to fall. Of course REITs are not immune to this sell-off and the price of all 7 REITs are down.

An investor can feel sad with a falling portfolio but one can also see this as a buying opportunity. This is actually a good time to buy high quality ones like AREIT – its fundamentals are intact; it has good properties in excellent locations with a high occupancy. Income investors should continue to focus on the dividends, not the price.

Risk that is more specific to REITs would be an overreliance to certain tenants – POGOs (Philippine offshore gaming operators) for example. Among the REITs, DDMPR has a 65% exposure to POGO while FILRT and RCR have 2.5% and 2% exposure respectively. I’m mentioning POGO because there is a negative sentiment against this industry due to its association to criminal activity. Many in the current government even support making it downright illegal.

Another risk is the work from home arrangements   in the IT-BPM industry. While I don’t see a sudden and  massive shift to WFH, it is happening and employees are actively choosing to work for employers that offer such arrangement. This can slow the demand for office space and can cause rents to go down as well.

To manage the above risks, investors need to choose QUALITY. We want REITs with a diverse mix of high quality properties and tenants. Good properties in excellent locations will always command a high rent and it will not be short of tenants willing to pay that rent. Diversification is also important. Investors need to look outside office REITs and consider CREIT (renewable energy) and VREIT (community malls) in their portfolio.

A quality REIT will only continue to be a good investment if it is able to grow its dividends and leasable space year after year. Rest assured this blog will continue to monitor them as well.