We have been looking for opportunities to increase our international exposure. With the world facing unusually high geopolitical and economic uncertainty, including in the U.S., we think it makes sense to spread our investments across more countries, currencies, and property markets rather than concentrating all our bets in one basket.

Today, we are doing exactly that by initiating a new small position in Canadian Apartment Properties REIT (CAR.UN:CA; CDPYF) for our International Portfolio. As new capital becomes available, we expect to grow it into a larger position over time:

CAPREIT is Canada’s largest publicly traded apartment landlord, with more than 45,000 apartment units, worth about C$14.4 billion. Most of its value is concentrated in attractive urban markets such as Toronto, Vancouver, Victoria, and Montreal. Yet the recent sector selloff has pushed its shares to around C$31, a roughly 43% discount to its latest reported NAV of C$54.38 per unit.

At this price, we get a nearly 5% distribution yield, an FFO multiple of roughly 12x, ongoing share repurchases, and what we believe is considerable upside as Canada’s rental market eventually recovers. We do not expect much growth immediately, but we believe the five- to ten-year opportunity is compelling.

We Have Done Very Well With Canadian Apartment REITs

Long-time members will know that Canadian apartments have been a particularly profitable hunting ground for us.

Our first investment was Northview Apartment REIT, which we bought in 2018 when its properties were trading at what we considered a substantial discount to private-market value. It was subsequently bought out, allowing us to realize a 54% total return despite the turmoil caused by the pandemic.

We then reinvested the proceeds into Boardwalk REIT (BEI.UN:CA). At the time, we considered Boardwalk the best opportunity in Canadian apartments. We held it through a significant recovery in its fundamentals and valuation, eventually selling once it reached our fair value estimate and realizing a 157% total return.

More recently, we bought Northview Residential REIT (NRR.UN:CA) at roughly C$9 per unit. Its shares have declined lately along with the sector, but at around C$13–14, we are still sitting on a substantial unrealized gain. We continue to own it and remain optimistic about its prospects.

Those have been three well-timed investments in a sector we have followed closely for years. Of course, past returns do not guarantee future results. But we believe our familiarity with these companies, their management teams, financing structures, and underlying property markets helps us identify opportunities when sentiment becomes excessively negative.

We now think CAPREIT could become another highly profitable Canadian apartment investment for us. What’s different this time is that some of the highest-quality, large-city portfolios have finally become just as discounted as the riskier alternatives.

A Selloff So Severe That Private Buyers Have Stepped In

Canadian apartment REITs have suffered a prolonged selloff, in some cases worse than their U.S. counterparts. One reason is that Canadian REITs commonly operate with higher debt-to-EBITDA ratios than large U.S. apartment REITs. As interest rates rose, refinancing became more expensive, and investors worried about how much cash flow would remain for shareholders.

The other major concern is the rental market itself. Canada sharply reduced temporary immigration, particularly student and foreign-worker inflows, just as apartment developments initiated during the earlier boom were being completed. That has weakened rental demand and asking rents in several large cities.

Public investors have reacted harshly. Private real estate buyers, however, have been taking a different view.

InterRent REIT agreed to be acquired by CLV Group and GIC, Singapore’s sovereign wealth fund, for C$13.55 per unit, a 35% premium to its unaffected share price. Minto Apartment REIT was acquired by Crestpoint Real Estate Investments and Minto Group for C$18 per unit, a 32% premium to its last unaffected closing price.

Both transactions were completed in 2026. They demonstrate that sophisticated institutional investors see substantial value in Canadian rental properties at prices meaningfully above those quoted in the stock market.

Meanwhile, several remaining publicly traded apartment REITs have continued to decline to even lower levels. That is why we have taken another close look at the entire sector.

Why CAPREIT Rather Than Another Canadian Apartment REIT?

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Cell tower REITs have been some of the more disappointing real estate investments of the past few years.

Crown Castle (CCI), American Tower (AMT), and SBA Communications (SBAC) have all suffered major declines from their prior highs as their growth rates slowed and investors became increasingly skeptical about their long-term prospects.

There were several reasons for this.

First, interest rates surged, which hurt nearly all REITs by increasing financing costs and making their dividend yields less attractive relative to bonds. Cell towers were particularly sensitive because they are long-duration infrastructure assets with very predictable cash flows, and therefore their valuations had benefited greatly from the ultra-low-rate environment of the prior decade.

But the bigger issue specific to towers was that their organic growth rates also slowed significantly because of tenant consolidation. The merger of T-Mobile and Sprint created a lot of redundant equipment across the country. T-Mobile did not need to continue paying rent on two nearby towers serving essentially the same customers, and so Sprint-related leases were gradually cancelled.

More recently, DISH also failed to develop into the fourth major nationwide wireless carrier that many had expected, creating another round of lease terminations.

This was especially painful for tower landlords because their business model is largely built around increasing co-tenancy. You build or acquire a tower, lease space on it to one carrier, and then gradually add more equipment from additional carriers. Since much of the cost of owning and maintaining the tower is already fixed, each additional tenant can generate very attractive incremental returns.

Instead of co-tenancy steadily rising, the industry suddenly experienced the opposite. Some existing equipment was removed, leases were cancelled, and organic growth slowed.

Then, just as these lease cancellations were beginning to work their way through the numbers, another concern emerged: Starlink.

The bear thesis was that satellite-based communications could eventually make traditional cell towers less important, further reducing the long-term growth prospects of these REITs.

We disagreed with that view and continued buying the dips at High Yield Landlord.

Our argument was not that the headwinds were imaginary. Sprint cancellations were very real, and DISH created an additional setback. But these were largely temporary issues that would eventually disappear from the year-over-year comparisons. Meanwhile, we saw satellite connectivity as complementary to terrestrial networks rather than a replacement for them.

Now, we have received an important new piece of evidence supporting that thesis.

SpaceX is reportedly looking to secure access to at least 80,000 cell sites across the United States as it works toward becoming a fourth nationwide wireless carrier. Bloomberg reported that the company is in discussions with cellular infrastructure providers, including Crown Castle. Crown Castle’s CEO declined to discuss specific negotiations on its latest earnings call but said that investors could assume the company was “talking to all parties” when specifically asked about potential agreements with SpaceX, Amazon, and other satellite operators.

That does not mean that SpaceX has already signed leases on 80,000 towers. It hasn’t. Negotiations are still taking place, and we do not yet know how many sites will ultimately be needed or what the economics will look like.

But I think the strategic implications are already quite significant.

Starlink Doesn’t Eliminate The Need For Towers

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Over the past year, I have become increasingly bullish on the long-term opportunity in data centers.

Artificial intelligence is accelerating a trend that was already well underway because of cloud computing and the continued growth in data consumption. The amount of capital that will need to be invested into the physical infrastructure supporting all of this is enormous.

McKinsey estimates that global data center expenditures could reach roughly $7 trillion through 2030. The five largest hyperscalers alone are expected to spend hundreds of billions of dollars annually on infrastructure, and despite all of this investment, new supply remains heavily constrained by access to power, land, permitting, equipment, and skilled labor.

This is resulting in near-0% vacancy rates in many of the most important markets and rapidly growing rents. They have more than doubled over the past five years:

We have discussed this opportunity quite a bit recently, but I realized that we haven’t really stepped back to look at what this means for our portfolios as a whole.

Our data center portfolio is slowly taking shape.

We now have three major investments that give us exposure to this theme from very different angles:

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This week, we continue to take advantage of the recent REIT market selloff by making small additions to some of our favorite buy-the-dip opportunities.

As we explained in our recent Market Updates, we think that the recent selloff is creating some particularly attractive buying opportunities.

Prior to the war in Iran, real-time inflation, according to Truflation, had fallen to just 1%, the 10-year Treasury yield had dipped below 4%, and the market was expecting several interest rate cuts by the summer of 2027.

The war disrupted this trend as surging energy prices pushed inflation and interest rate expectations higher, causing REIT valuations to drop sharply.

However, we continue to believe that this is primarily a temporary energy shock, and that as the war eventually ends and energy prices normalize, inflationary pressures should ease and interest rates could resume their downward trajectory.

Our long-term thesis remains unchanged. We believe that aging populations, slowing population growth, extreme wealth inequality, excessive debt levels, and technological innovation, particularly AI, are powerful disinflationary forces that should eventually push us back toward an era of lower inflation and lower interest rates.

The war has delayed this trend of declining interest rates, which has existed for nearly half a century, but we do not think that it has fundamentally changed it.

For this reason, we see the recent selloff as an opportunity to accumulate REITs at unusually attractive valuations, especially since their underlying fundamentals generally remain strong and higher interest rates are also restricting competing new construction.

The return potential is particularly attractive when you consider the 3 main components of REIT total returns:

Today, a lot of REITs offer 5-8% dividend yields, have the potential to grow their FFO per share by another 3-5% annually, and could enjoy another 5-10% of annualized valuation upside as their discounts to NAV gradually narrow.

This suggests that 15-20% average annual total returns could be achievable for many REITs over the coming years, even without making particularly aggressive assumptions about rent growth or the pace of the valuation recovery.

Of course, there are risks, and we cannot predict when the market will recover. But we believe that the long-term risk-to-reward is very compelling at today’s valuations, and we are happy to continue gradually building larger positions while prices remain depressed.

This week, we are making small additions to 3 REITs that have suffered particularly large declines: 1 in our Core Portfolio, 1 in our Retirement Portfolio, and 1 in our International Portfolio.

Here is what we are buying and why.

Core Portfolio

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While it might be predictable, we think the market continues to overreact to hot CPI readings, which makes the related selloff in REITs a great buying opportunity.

In what follows, we will dig into the latest CPI report for September 2026, showing that inflation remains contained to the energy category.

And then we will consider three major disinflationary forces exerting pressure in the opposite direction right now.

September CPI Shows More of The Same

The narrative about inflation that moves the market and drives interest rates appears to be remarkably simplistic.

The idea is that higher oil prices, and especially stubbornly high diesel prices, are pushing up the CPI, and a higher CPI rate is pushing up interest rates.

Higher interest rates, in turn, have caused a sharp selloff in rate-sensitive stocks such as REITs (VNQ).

But we think the recent inflationary surge is a lot less daunting or threatening than the market reaction would indicate.

As we argued in our last inflation report, this inflationary surge has been and remains overwhelmingly oil-driven.

The most recent CPI report for September 2026 did not change that. As you can see in this chart, the energy component of the CPI soared 20% year-over-year, pulling up headline CPI to 3.7%.

Meanwhile, core CPI also bounced off its recent low to 2.6%, which has caused some to worry that higher fuel costs are already translating into price increases for other items across the economy.

We disagree with that read of the situation.

While this may not be true for the rest of the world, the US has so far seen little to no translation of higher fuel costs into higher prices of other goods and services (aside from directly impacted industries like airlines). Instead, most of the September uptick in core CPI came from a mysterious bump in owners’ equivalent rent, a notoriously quirky component of the CPI that makes up ~26% of the headline index and ~32% of the core index.

The major categories of Food, Goods (ex. food & energy), and Shelter all remain stable or in disinflationary trajectories.

(Click on the image to enlarge on your screen.)

Together, Food (13.5%), Non-food/energy goods (18.8%), and shelter (35.3%) account for roughly two-thirds (67.6%) of the CPI basket.

Energy items account for only 7.4% of the overall index but are the primary driver of its upward trajectory right now.

Airfares, which make up 1.0% of the CPI basket, also surged 22% YoY in September, but they are overwhelmingly based on energy prices.

While electricity prices are rising because of the AI-driven growth in demand for power, we would emphasize that prices for non-energy services, groceries, and non-food/energy goods all remain under control.

Steve Rattner

Note that the majority of non-energy services are shelter metrics. The non-shelter categories within non-energy services show even lower levels of price growth than shelter.

Medical care services showed a YoY increase of 2.5% in September, while transportation services showed only a 2.7% YoY increase, even including a 22% jump in airfares!

To be fair, fruits and vegetables are one category where we have seen higher diesel costs impact prices. There has been a distinct increase in fruits & vegetables prices in the wake of the Iran conflict. But fruits & vegetables prices fluctuate significantly and sometimes drop, unlike many other types of goods where prices only ever go up.

The food category overall is not seeing a rising rate of price growth. Instead, since sometime over the summer, the food category of the CPI appears to have returned to a disinflationary trend.

Shelter was an outlier outside the energy category in September, bouncing from the previous month’s 3% rate up to 3.2%.

What is going on with housing?

By virtually all available data, we can safely conclude that the cause of the uptick was not rent rates. Apartment List shows -0.1% month-over-month and -0.4% year-over-year rent changes for the month of September. New lease rents should still be exerting downward pressure on the CPI’s “Rent of Primary Residence” item.

Instead, virtually all of the shelter component’s September bump came from the “Owners’ Equivalent Rent” item.

Rent of Primary Residence (Blue) & Owners’ Equivalent Rent (Green) YoY:

We won’t rehash all of our reasons for thinking the OER is a poor way to measure housing inflation, but suffice it to say that the metric is based on surveys of homeowners performed every 6 months. Homeowners are asked how much they think their home would rent for (not including utilities).

After some adjustments, this survey data becomes the final OER number.

But since most homeowners don’t participate in the rental market, their rent estimates tend to be derived from a combination of local market rent rates and broader economic sentiment.

If, say, broader sentiment is that inflation is high, then survey respondents may inflate their homes’ estimated rent rates. We think that is probably the main reason for the September bump in the OER.

While we can’t predict where OER will fall in the pre-Midterm month of October (after all, there’s lots of politically motivated media buzz about inflation and affordability right now), we do think the shelter component of the CPI remains in a disinflationary trend.

Zillow forecasts this gradual disinflationary trend to last for at least the next two years:

The plain fact of the matter as it relates to housing is that US population growth is now extremely low, while new single-family and multifamily housing continues to be built, albeit at a significantly slower pace than its post-pandemic peak.

That presents a headwind to organic growth for residential REITs (who have other ways of growing besides rent increases), but it is a major disinflationary force within the CPI.

The Important Disinflationary Forces

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We continue to take advantage of the recent REIT market sell-off by gradually adding to some of our favorite investments that have become particularly opportunistic.

As I explained in our previous trade alerts, we are not attempting to predict when the market will bottom. Interest rate volatility has caused REIT valuations to drop sharply, and it is entirely possible that they could fall further in the near term.

But we also recognize that many REITs are now priced at exceptionally attractive valuations from a long-term perspective, and we expect these investments to produce very attractive returns over the coming years.

In fact, we do not need to make particularly aggressive assumptions to see how compelling the return potential has become. Consider a REIT that offers a 5-6% dividend yield, grows its cash flow by about 4% annually, and benefits from another 5-10% of annualized upside as its valuation gradually recovers. Put these together, and you get roughly 15-20% average annual total returns over the recovery period.

This may sound ambitious, but given how heavily REIT valuations have been discounted, I think it is a very realistic scenario for many of the REITs that we are buying today. We do not need exceptionally strong growth or a return to historically high valuations to achieve these kinds of returns. A gradual normalization of valuations, combined with steady growth and dividend income, could be enough.

In fact, REITs have historically delivered even stronger returns following periods when they traded at substantial discounts to their net asset values:

Rather than trying to time the bottom, we prefer to make small weekly additions with greater discipline, focusing on those REITs that have suffered the steepest declines despite maintaining strong fundamentals.

This week, we are buying more shares of Healthcare Realty Trust (HR), our favorite medical office REIT.

Why Healthcare Realty?

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RCI Hospitality (RICK) has been one of our more controversial investments over the past year.

The stock suffered a major selloff alongside other restaurant and hospitality stocks, such as Chipotle (CMG) and Cava (CAVA), as investors became increasingly concerned about weakening consumer spending. But RICK’s decline was made worse by legal allegations against the company, while rising financing costs and increased leverage added further pressure:

But I have maintained that the underlying business is worth considerably more than what the market is willing to pay for it. Earlier this year, we increased our position by about 10%, after RICK finally released its delayed financial statements and provided greater clarity on its financial position.

The stock has since recovered a little, but it remains deeply discounted. I recently had the opportunity to speak with Eric Langan, RICK’s founder and former CEO, who remains involved as Head of M&A. During our nearly one-hour conversation, we discussed the legal case, debt, real estate sales, operating performance, acquisitions and buybacks.

I came away encouraged. The problems are real, but there is a clearer potential path toward resolving them, restoring financial flexibility, and returning to the growth strategy that made RICK so successful historically. Given the valuation, the upside could be substantial if management executes.

Here are my main takeaways.

1. The Legal Case Could Be Resolved in 2027

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We are currently in the midst of a rare crash in preferred stock prices, including REIT preferreds, and also including investment-grade REIT preferreds.

While most IG-rated REIT preferred stocks tend to yield around 6% or less, they can today be bought at 7% or higher yields.

And many non-IG REIT preferred stocks that typically yield about 7% now offer yields of about 8%.

We think this represents a phenomenal buying opportunity, especially for income-seeking investors.

Let’s briefly discuss why this preferred stock selloff is happening right now. Then we will take a selective survey of REIT preferred stock buying opportunities across the credit spectrum from investment grade to sub-IG.

Bond Proxy Downturn

Luckily, it is pretty simple to explain why preferred stock prices are falling right now: interest rates are rising.

When rates rise, bond prices fall. That’s another way of saying that when interest rates rise, bond yields rise. When rates fall, bond yields fall.

Likewise for bond proxies such as preferred stocks, which are basically fixed-income securities. Rates are rising due primarily to high oil and diesel prices and secondarily to uncertainty about the number of Fed Rate hikes that are coming this year as a result of oil-driven inflation.

The sudden shift in market expectations during the month of September toward another Fed rate-hiking cycle caused all kinds of fixed-income securities to sell off.

As you can see from this chart, REIT preferred stock yields tend to be highly correlated to the 10-year Treasury rate (except during recessions):

Don’t get too excited about the 8.8% yield you see from the InfraCap REIT Preferred ETF (PFFR), because that includes a number of lower-quality preferred stocks issued by hotel REITs or mortgage REITs. Those tend to sport higher yields for good reason.

Even so, this chart illustrates how REIT preferred stock yields are at a non-recessionary peak right now. That is, outside of recessions, they rarely yield higher (on average) than they do right now.

We think that makes them an attractive place to look for buying opportunities right now.

To be clear, if interest rates kept going higher and higher indefinitely, then there would be an indefinite amount of further downside for REIT preferred stocks.

But as we have explained in the past, we think the current rising rate environment is driven overwhelmingly by two temporary factors:

1. The war in Iran, which is disrupting global oil flows, and

2. Hyperscaler debt issuance, which will probably begin to decline over the next year or so.

It is impossible to time the end or phase-out of these two factors. They could occur separately, or they could happen simultaneously.

In either case, we think it is telling that long-term (next 3-5 years) inflation expectations remain pretty well anchored at around 2.5-3.0%, which is about average.

The market does not expect the current inflationary environment to turn into a new secular inflationary period like the 1970s. Neither do we.

Of course, we cannot time the top in interest rates, nor the bottom in preferred stock prices. We don’t try to time the market.

Rather, we simply recognize a good buying opportunity when we see one, and we deploy capital into that opportunity in increments.

Let’s take a look at some attractive REIT preferred stocks, starting with IG-rated ones and then moving to the higher-yielding non-IG-rated names.

Opportunities Among REIT Preferred Stocks

In some ways, the fundamental case for a REIT’s preferred stock is similar to what it is for its common stock. If cash flow grows while preferred equity shares outstanding stay flat or grow slower, then preferred dividend coverage increases, making the payout safer.

On the other hand, preferred stocks pay fixed dividends and have fixed redemption prices, typically $25. That gives them less upside than common stocks.

As it pertains to preferred dividend coverage, keep in mind that while higher interest expenses are negative, stronger operating fundamentals are positive and more than offset that negative. Given the favorable supply-demand dynamics for the next several years, most REIT preferred stocks should see dividend coverage increase for the foreseeable future as EBITDA (earnings before interest, taxes, depreciation, and amortization) rises faster than interest costs.

That’s another reason this REIT preferred stock selloff is so attractive to us.

The selloff is basically mechanical, as bond proxies fall along with bonds. But preferred dividend coverage, especially for low-leveraged investment-grade REITs, should only expand over the next few years.

Here are six IG-rated REIT preferred stocks to consider:

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Quick Reminder:

We just held our quarterly webinar and discussed many of our top holdings, recent trades, and the opportunities that we are most excited about today.

Many of you joined us live, and I want to thank you for taking the time and for asking such thoughtful questions.

Here is a list of topics with timestamps for your convenience:

0:56 - Rising interest rates

5:12 - Realty Income (O)

7:16 - Essential Properties Realty Trust (EPRT)

9:16 - Agree Realty Corporation (ADC)

11:08 - Cash secured puts and covered calls

12:30 - Cibus Nordics (CIBUS)

13:33 - Tallinna Sadam (TSM1T)

15:15 - European REITs

17:20 - Branicks (BRNK)

19:35 - Canadian REITs

21:06 - Vital Infrastructure Property Trust (VITL.UN:CA)

23:10 - 5 REITs that are heavily discounted to NAV

25:05 - Current favorite REIT sectors

26:46 - Temporary crisis or permanent change in interest rate expectations

28:55 - CTP and Hamborner REIT

30:25 - ARMOUR Residential REIT (ARR)

31:23 - AH Realty Trust (AHRT)

34:15 - Accelerating rent growth

36:30 - Cold storage REITs

37:05 - Unite Group vs. Xior Student Housing

38:00 - Rising government debt levels

39:30 - Top REITs for the next 12 months

41:40 - Safehold (SAFE)

42:30 - Patria Investments (PAX)

44:30 - Realty Income (O)

45:10 - Agree Realty Corporation (ADC)

47:00 - Favorite Apartment REIT today

48:25 - Clipper Realty (CLPR)

49:40 - European vs. US REITs

51:45 - Agree Realty Corporation (ADC)

52:15 - Wynn Resorts (WYNN)

53:10 - RCI Hospitality (RICK)

54:40 - NewLake Capital Partners (NLCP)

56:10 - VICI Properties (VICI) vs. REIT Preferred Shares

58:20 - Best property sectors for a higher-for-longer environment

59:10 - Residential oversupply in Sunbelt markets

1:00:27 - Invitation Homes (INVH)

1:03:08 - Net Lease Office Properties (NLOP)

1:03:53 - NewLake Capital Partners (NLCP)

1:04:30 - Alexandria Real Estate (ARE)

1:06:55 - Kite Realty Group (KRG) vs. Kimco Realty (KIM)

1:07:25 - Closing Notes

TRADE ALERT - Core Portfolio October 2026

Since initiating our position in Blackstone Digital Infrastructure Trust (BXDC), the investment thesis has not changed.

What has changed is the price.

The broader REIT market has sold off sharply as the escalation of the war pushed energy prices and inflation higher, ultimately forcing the Fed to hike interest rates. BXDC has been dragged down with the rest of the sector and has now fallen by roughly 16% since we initiated our position.

We view this as an attractive opportunity to buy the dip, and we are therefore increasing the size of our BXDC position today.

BXDC completed its IPO earlier this year at $20 per share. The stock is now trading at around $17, or roughly 16% below its IPO price.

Importantly, however, the recent increase in interest rates has had very little direct impact on the company itself.

BXDC is in a very unusual position today because it has barely built its portfolio yet.

As of the end of the second quarter, BXDC had approximately $1.94 billion of cash and cash equivalents and had not yet acquired any data centers. It also had no outstanding borrowings under its credit facility.

With roughly 100.6 million shares outstanding, that works out to about $19.30 of cash per share.

Yet the stock is now trading at roughly $17.

Put differently, we are essentially getting the opportunity to buy this pile of cash at an approximately 13% discount before Blackstone has even had the opportunity to deploy most of it into data centers.

Of course, there are fees, expenses, and execution risks, so I would not treat this as literally buying $1 of cash for $0.87. But it illustrates why we think the recent sell-off is particularly interesting in BXDC’s case.

BXDC does not have a leveraged legacy portfolio that is now suffering from higher refinancing costs. It has no meaningful debt today and is still sitting on nearly all of the capital that it raised in its IPO.

That gives it a lot of optionality.

Blackstone intends to deploy this capital into newly constructed, stabilized data centers leased primarily to investment-grade hyperscalers on long-term contracts.

And interestingly, the recent rise in interest rates could actually make the opportunity set somewhat more attractive.

When we first invested, BXDC was targeting acquisition yields of roughly 5.75%-7%+, depending on the assets. If higher rates put some pressure on private real estate valuations, Blackstone may now be able to deploy some of this capital at somewhat higher cap rates than would otherwise have been possible.

We do not know yet whether that will happen, and we do not want to assume it. But BXDC enters this higher-rate environment from a very different position than most REITs.

It is primarily a buyer of assets rather than an owner of a large leveraged portfolio that needs to refinance debt.

That distinction is important.

The company can remain patient, earn interest on its cash while it waits, and potentially take advantage of more attractive acquisition opportunities if higher rates create them.

During the roughly six weeks between its IPO and the end of June, BXDC already generated $9.3 million of interest income from its cash holdings. With short-term rates now higher, the yield earned on this undeployed capital should, all else equal, also be somewhat more attractive while Blackstone waits for the right opportunities.

The bigger opportunity, however, remains what happens once the cash is invested.

Read more

Quick Reminder:

We just held our quarterly webinar and discussed many of our top holdings, recent trades, and the opportunities that we are most excited about today.

Many of you joined us live, and I want to thank you for taking the time and for asking such thoughtful questions.

Here is a list of topics with timestamps for your convenience:

0:56 - Rising interest rates

5:12 - Realty Income (O)

7:16 - Essential Properties Realty Trust (EPRT)

9:16 - Agree Realty Corporation (ADC)

11:08 - Cash secured puts and covered calls

12:30 - Cibus Nordics (CIBUS)

13:33 - Tallinna Sadam (TSM1T)

15:15 - European REITs

17:20 - Branicks (BRNK)

19:35 - Canadian REITs

21:06 - Vital Infrastructure Property Trust (VITL.UN:CA)

23:10 - 5 REITs that are heavily discounted to NAV

25:05 - Current favorite REIT sectors

26:46 - Temporary crisis or permanent change in interest rate expectations

28:55 - CTP and Hamborner REIT

30:25 - ARMOUR Residential REIT (ARR)

31:23 - AH Realty Trust (AHRT)

34:15 - Accelerating rent growth

36:30 - Cold storage REITs

37:05 - Unite Group vs. Xior Student Housing

38:00 - Rising government debt levels

39:30 - Top REITs for the next 12 months

41:40 - Safehold (SAFE)

42:30 - Patria Investments (PAX)

44:30 - Realty Income (O)

45:10 - Agree Realty Corporation (ADC)

47:00 - Favorite Apartment REIT today

48:25 - Clipper Realty (CLPR)

49:40 - European vs. US REITs

51:45 - Agree Realty Corporation (ADC)

52:15 - Wynn Resorts (WYNN)

53:10 - RCI Hospitality (RICK)

54:40 - NewLake Capital Partners (NLCP)

56:10 - VICI Properties (VICI) vs. REIT Preferred Shares

58:20 - Best property sectors for a higher-for-longer environment

59:10 - Residential oversupply in Sunbelt markets

1:00:27 - Invitation Homes (INVH)

1:03:08 - Net Lease Office Properties (NLOP)

1:03:53 - NewLake Capital Partners (NLCP)

1:04:30 - Alexandria Real Estate (ARE)

1:06:55 - Kite Realty Group (KRG) vs. Kimco Realty (KIM)

1:07:25 - Closing Notes

What Austin Bought & Sold In Q3 2026

I don’t know about you, but it’s hard not to feel a little FOMO right now.

In 2026, the market has been dominated by two particular themes:

1. High oil prices, courtesy of the military conflict between the US and Iran

2. A ramp-up of AI infrastructure spending, fueling incredible earnings growth for AI suppliers (predominantly chipmakers)

With few exceptions, if you aren’t heavily invested in either the AI ecosystem (CHAT) or energy stocks (XLE), then you are probably having a mediocre year for returns.

Note that while ~13% total returns are pretty respectable for the S&P 500 (SPY), the index is heavily concentrated in AI stocks. Without the tech sector (see chart below), the SPY’s performance would be much worse.

Note also that after outperforming the SPY for much of this year, the real estate sector (VNQ) has once again (*sigh*) turned down as rising interest rates start to bite.

But market concentration is even more significant than many investors realize. Not every company in the AI ecosystem is soaring in price this year. It’s mostly semiconductor stocks (SMH). Megacap growth stocks (MGK) are performing slightly less well than the S&P 500 (not surprising, given their weight in the index), while the S&P 500 excluding tech (SPXT) is up only about 4% year-to-date.

So if you’re not a tech investor and your portfolio is treading water this year, I’m with you.

My portfolio is made up largely of REITs (35% of the portfolio), various financials (27%) like BDCs and alternative asset managers, and utilities (14%). All three of those sectors, which together make up 3/4ths of my portfolio, are having a rough year, due overwhelmingly to rising interest rates.

Aside from interest rates, the fundamentals of all three sectors are solid.

Regulated utilities are held back somewhat by regulatory issues and backlash against almost any new power generation projects, but they enjoy long-term tailwinds from growing electricity demand and data center proliferation.

Alternative asset managers may see their underlying asset performance flag somewhat amid higher interest rates, but fundraising continues to be strong, especially from institutional investors.

The higher-quality, mostly internally managed BDCs I own are having a decent year overall, although some (like Trinity Capital) are doing better than others (Hercules Capital) on the pricing front. Steady GDP growth and avoidance of the SaaSpocalypse have kept returns high and non-accrual rates low.

Finally, while higher interest rates mechanically weigh on REIT stock prices by creating a safe yield alternative for investors, most REITs themselves are far less vulnerable to higher rates than you might think. Most REITs (certainly all of the ones I own) have moderate to low debt levels with average maturities spanning from around 5 to 8 years.

More importantly, as we have been pounding the table about here at High Yield Landlord, REIT fundamentals enjoy a very strong tailwind for at least the next 2-3 years (if not longer) from extremely favorable supply-demand dynamics.

To put it simply, commercial real estate construction pipelines have collapsed across the board, while tenant demand continues to range from decent to excellent.

To be clear, my bullishness on most types of housing has waned quite a bit this year as demographic and immigration realities have set in. According to the Census Bureau, the total US population appears on track to peak sometime in the next several years, and the working-age population has probably also peaked.

Going forward, all growth in the US working-age population will come from net immigration. Right now, net immigration is extremely low. What little immigration inflows we have are largely if not entirely offset by deportations.

Who rents apartments? Mostly working-age folks.

Even after the collapse in the multifamily construction pipeline we’ve already seen, there’s still probably too much new housing supply coming to market.

I don’t mean to sound alarmist here. I just don’t think multifamily REITs will enjoy the same growth or returns in the future as they have in the past. That probably means apartment cap rates will gradually rise and that multifamily REIT valuations won’t rebound back to their pre-supply-wave levels. They may still make for solid investments — at the right price. But valuations, I think, have been permanently reset lower.

Demographics are destiny, as they say.

The one area of housing on which I (and the market generally) am extremely bullish is senior housing. While the huge Baby Boomer generation are just now beginning to enter their 80s, when a growing portion of them opt for senior housing solutions, the development pipeline for this type of real estate remains ultra-low.

High interest rates, elevated construction costs, and labor shortages are keeping developers at bay, for the time being.

For at least the next few years, senior housing occupancy and rent rates will be allowed to continue growing with very little new competing supply coming to market.

My top pick in this space right now, a small position that I’m trying to grow aggressively, is Janus Health (JAN), the recent senior housing spinoff of Healthpeak Properties (DOC). The REIT has zero net debt and a high-quality portfolio of senior living facilities, most of which are continuing care communities where residents can smoothly transition from independent to assisted living and, if needed, skilled nursing.

JAN isn’t cheap at about a 30x FFO multiple, but its growth rate is astounding. The analyst consensus estimates put JAN’s price-to-2028 FFO at around 21-22x.

Top Ten Holdings

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Table of Contents

1. Opening Notes

2. Changes Portfolio Holdings

3. Changes to HYL Ratings

4. The Core Portfolio (Our Main Portfolio)

5. The Retirement Portfolio (Our Secondary Portfolio)

6. The International Portfolio (Our Optional Portfolio)

1. Opening Notes

The third quarter was a frustrating one for REIT investors, particularly toward the end of the period.

We entered Q3 with strong momentum.

As discussed in our Q2 Portfolio Review, REITs had performed very well during the first half of the year despite interest rates remaining elevated. Investors were beginning to recognize some of the themes that we had been highlighting for a while: valuations remained historically low, supply growth was slowing, rent growth prospects were improving in many property sectors, M&A and buyback activity were accelerating, and real assets were increasingly benefiting from concerns about AI disruption.

Unfortunately, the macro environment then took a turn for the worse.

The escalation of the war in Iran disrupted energy markets and caused oil prices to surge. This pushed headline inflation higher, led bond yields to rise, and ultimately forced the Fed to hike interest rates. The market sentiment of REITs is highly sensitive to changes in rates and reacted predictably: valuations fell sharply as investors once again worried about higher refinancing costs, higher cap rates, lower property values, and the relative attractiveness of bonds.

We recently discussed this in detail in our Market Updates, and I will not repeat everything here. The important point is that the recovery we were seeing earlier in the year has been interrupted. This has delayed the normalization in interest rates that we had been hoping for, and REITs have given back a meaningful portion of their earlier gains.

I understand why this is frustrating. REIT investors have had to deal with several years of rate volatility already, and every time it looks like conditions are finally beginning to normalize, something seems to push the recovery further out.

But I also think this is exactly when it is most important to remain patient.

Another Setback, Not A Broken Thesis

The first thing to recognize is that the recent inflation surge has largely been caused by energy.

The war disrupted energy markets, oil prices surged, and headline inflation moved higher as a result. But when we look beneath the headline numbers, the inflation picture is much less concerning. Core inflation has continued to trend lower, and many of the largest non-energy CPI components are showing stable or disinflationary trends.

This distinction matters because an energy shock is very different from a broad-based overheating of the economy.

Higher oil prices can certainly remain elevated for longer than expected, and they can feed into other prices over time. I do not want to dismiss that risk. But energy shocks also tend to be self-correcting eventually. High prices reduce demand, encourage additional supply, and weaken economic activity. The war will not continue forever either, even if nobody can predict when or how it will end.

That is why I view the recent rate hike as a delay to the REIT recovery rather than a fundamental change in our long-term thesis.

We have been through similar periods before. During 2022 and 2023, REITs repeatedly sold off as rates climbed and investors concluded that higher financing costs had permanently impaired the sector. In hindsight, those periods gave us some of our best opportunities to accumulate shares at depressed valuations.

We did not know exactly where the bottom would be then, and we do not know today either. What we can do is assess whether the assets are still valuable, whether the balance sheets are sound, whether rents are likely to grow over time, and whether the prices we are being offered compensate us for the risks.

In many cases today, I think they do.

That is why we have continued buying gradually. We are not trying to call the exact bottom, and we are not putting all our capital to work at once. We are adding in phases, week after week, to our latest favorite opportunities to buy the dip.

If prices fall further, we will have an opportunity to buy more cheaply. If the sector begins recovering sooner than expected, we will already have increased our exposure.

Keep Your Eyes On The Prize

The bigger mistake, in my view, would be to become so focused on the latest Fed meeting that we lose sight of the longer-term forces that ultimately matter to our thesis for investing in REITs at these discounted levels.

Interest rates have trended downward over the past four decades, despite many temporary periods in which inflation and rates moved sharply higher.

The reasons behind that long-term trend have not disappeared.

Aging populations tend to grow and consume more slowly. Population growth is slowing across much of the developed world. High debt levels make economies increasingly sensitive to elevated interest rates. Rising wealth inequality means a larger share of income is saved and invested rather than immediately spent. And technology continues to reduce the cost of producing goods and services.

We discussed these structural disinflationary forces in our recent Market Update, and I think they remain as relevant today as ever.

The technology component is particularly important because of AI.

Technology has always been deflationary to some extent. It allows businesses to produce more with less labor, reduces costs, increases competition, and improves productivity. But AI has the potential to accelerate this process dramatically.

We are already seeing AI automate parts of software development, customer service, research, administration, content creation, analysis, and many other forms of knowledge work. Over time, this will increasingly be combined with robotics, autonomous systems, and other forms of automation in the physical economy.

I do not think anyone can know exactly how quickly this will happen or how large the impact will ultimately be. But if AI delivers even a portion of the productivity gains that are currently being discussed, it could become one of the most important deflationary forces of this century.

That would have major implications for interest rates.

If technology allows companies to produce more at lower cost while also drastically reducing the need for human labor in many industries, central banks may eventually face a very different problem from the one they face today. Rather than fighting excessive inflation, they may increasingly need to support employment, especially if we face a difficult AI transition period with it eliminating a lot more jobs than it creates in the near term.

This is why I continue to believe that interest rates will eventually return to much lower levels.

Could they ultimately approach 0% again during a future downturn? I think that is entirely possible. I would not make that my base case for any specific year, because there are simply too many variables involved, but I also think investors are too quick to assume that today’s relatively high interest rates represent a permanent new normal.

The structural forces that pushed rates lower for decades are still here, and in some respects they are stronger than ever.

Why This Matters So Much For REITs

This is where today’s valuations become particularly interesting.

One of the main reasons why investors currently want little to do with REITs is precisely because interest rates are high. Investors can earn attractive yields from bonds without taking real estate risk, financing costs are elevated, and the possibility of higher cap rates weighs on property valuations.

All of this is reflected in REIT share prices.

But if rates eventually normalize to much lower levels, the economics could change significantly. REIT dividend yields would become more attractive relative to fixed income, refinancing costs would gradually decline, investment spreads would improve, and lower required returns could support higher property values.

Importantly, we would be entering that environment from today’s depressed valuations.

That is very different from buying REITs when valuations are already high, and investors are already pricing in low rates. Many REITs today trade at sizable discounts to the estimated value of their properties precisely because the market assumes that current financing conditions will persist for a long time.

If that assumption proves too pessimistic, there could eventually be substantial upside.

I do not think we need interest rates to return all the way to 0% for this thesis to work. Even a gradual normalization toward lower rates could improve refinancing costs, cap rates, investment spreads, and investor sentiment.

But the possibility of very low rates again at some point is one reason why I think investors should avoid extrapolating today’s conditions indefinitely into the future.

Value Is Still Building In The Background

There is also an important part of the story that has very little to do with short-term REIT share prices.

The current high-rate environment is making it extremely difficult to develop new real estate.

Financing costs are high. Construction costs remain elevated. Required returns have increased. In many markets, developers simply cannot justify starting new projects at today’s economics.

As we highlighted in our recent Market Update, construction lending has fallen sharply, and development pipelines have contracted across apartments, industrial properties, offices, and senior housing.

This creates an unusual situation.

Higher rates are hurting REIT valuations today, but at the same time, they are reducing the amount of competing real estate that will be delivered several years from now.

That is likely to be very valuable for owners of existing high-quality properties, as real estate is ultimately a supply-and-demand business. Once the projects that were started during the previous construction boom are absorbed, lower new supply should lead to higher occupancy, fewer concessions, and stronger rent growth in many property sectors.

We are already beginning to see this setup develop.

The market tends to focus almost entirely on the negative side of higher rates, namely higher interest expense and lower valuation multiples. But it pays much less attention to the fact that the same high rates are improving the future competitive position of existing landlords.

We have argued that this more favorable supply-demand backdrop could extend for several years. This means that value can continue to build even while share prices remain depressed.

Rents can rise.

Property-level NOI can grow.

Replacement costs can increase.

And because little competing supply is being built, existing properties can become more valuable relative to the cost of replacing them.

For now, some of that growth is being offset at the REIT level by higher interest expense. But if rates eventually fall, the situation could reverse. At that point, lower financing costs could begin to coincide with stronger rents and a much healthier supply-demand environment.

That is the outcome we are positioning for.

How We Are Reacting

Our strategy is therefore not changing because of the recent sell-off.

We are continuing to accumulate shares gradually, with an emphasis on REITs that have fallen sharply despite owning high-quality assets, maintaining solid balance sheets, and benefiting from attractive long-term supply-demand dynamics.

We are not assuming that the recovery will begin tomorrow. The war could continue. Oil prices could stay elevated. Inflation could remain stubborn for longer than we expect, and the Fed could keep rates high.

But we also do not need to predict the exact timing of the turn.

What matters much more is whether we are buying good assets at prices that offer attractive long-term returns.

Over the years, some of our best investments have been made during periods when sentiment toward REITs was extremely poor. Those opportunities rarely felt comfortable at the time. The headlines were negative, investors were losing patience, and there was always a reason to wait for greater clarity.

Greater clarity usually arrived only after prices had already recovered.

That is why we are willing to accept some short-term discomfort today.

We still believe that the long-term forces driving inflation and interest rates lower remain in place. We think AI could strengthen those forces considerably over time. Meanwhile, today’s high rates are constraining new construction and laying the foundation for stronger rent growth in many property sectors.

The timing of the recovery may have been delayed a bit, but the long-term opportunity, in my view, has not.

So we will continue doing what has worked for us during previous sell-offs: buying gradually, collecting dividends, and allowing the underlying real estate to compound in value while we wait for the macro environment to eventually improve.

We are also evaluating several potential capital recycling opportunities. Some of our holdings have held up relatively well during this recent sell-off, while other high-quality REITs have dropped much more sharply. In those cases, it may make sense to sell positions where the relative upside has become less attractive and redeploy the capital into names that now offer a better risk-to-reward.

We are reviewing several such opportunities right now and expect to share more soon. Stay tuned for our upcoming trade alerts.

Finally, in case you missed it, we just held our quarterly webinar and discussed many of our top holdings, recent trades, and the opportunities that we are most excited about today.

You can listen to the recording here:

I also want to remind you that our book, The REIT Advantage, is still available for free to all members of High Yield Landlord.

I strongly encourage you to take the time to read it, as I truly believe it can help you make better investment decisions.

You can claim your free copy by clicking here.

Thank you for all your support, and as always, let us know if we can help with anything.

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2. Updates to Our Portfolio Holdings:

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Quick Reminder:

I am excited to announce that we will be hosting our fifth live Q&A webinar, exclusively for subscribers of High Yield Landlord.

This is your opportunity to connect directly, ask questions, and dive deeper into REITs, real estate, and anything else we cover in the newsletter.

Event Details

• Format: Live Zoom Q&A

• Date & time: Monday 10/05/2026 at 1PM EST

• Access: Free and exclusive to subscribers, but registration is required. Click here to register and secure your spot!

• Spots available: Only 300 — first come, first served

How It Works

• You will be able to ask questions live in the Zoom chat during the session

• You can also leave your questions in the comment section below in advance — I will try to answer as many as possible

• If you cannot attend live, I will post a recording afterward for all subscribers

Reserve Your Spot

Due to limitations in our Zoom plan, we can only accommodate 300 participants for the live session.

If you would like to attend live, please reserve your spot as soon as possible — click here to register.

Looking forward to seeing many of you there!

Our New Top Pick: National Health Investors

National Health Investors (NHI) has made multiple shareholder-friendly moves recently for which the REIT has scarcely been rewarded by the market.

The REIT currently trades at a 13.1x FFO multiple (based on normalized FFO per share), which is near the lower end of its range from the last few years.

We certainly think this is too low given NHI’s recent capital allocation moves and future growth prospects. We think the REIT deserves at least an 18x FFO multiple, giving it 30% upside to fair value. That’s on top of a 5.8% yield and mid-single-digit growth rate.

Since we have covered NHI multiple times recently, let’s emphasize some of this year’s most important highlights:

• The sale of the 35 master-leased properties (mostly skilled nursing and a few independent living facilities) operated by National Healthcare Corporation back to the tenant was completed in July 2026. This generated $560 million in proceeds at a roughly 7% cap rate.

• Critically, this deal eliminated conflicts of interest between NHI and NHC, which had some overlap in board membership.

• In addition to the NHC sale, NHI has also completed 6 other property dispositions for $117 million at an average cap rate of 8.4%. Judging by the exit yield, these were some of NHI’s lower-quality properties.

• So far this year, NHI has acquired $237 million of real estate, $212 million of which was SHOP (senior housing operating properties), and had signed letters of intent for another $127 million. The weighted average yield on 2026 investments is 7.74%, while signed LOIs yield 6.5%.

• Private pay senior housing has now reached almost 80% of the portfolio, up from ~66% in Q2 2025.

• Net debt to EBITDA sat at 4.1x in Q2, but pro forma (once recent disposition proceeds are reinvested), it is a mere 2.5x.

We think NHI temporarily trades at a discount to our estimated fair value because management’s portfolio recycling efforts are causing a very slight dip in FFO per share this year. But in the long run, these portfolio moves will result in a much stronger portfolio that is capable of faster organic growth.

We expect NHI to generate 5-8% FFO per share growth in 2027 and beyond.

The current dip in the stock price represents a great buying opportunity for long-term investors.

The Bull Case For NHI

Read more

I am excited to announce that we will be hosting our fifth live Q&A webinar, exclusively for subscribers of High Yield Landlord.

This is your opportunity to connect directly, ask questions, and dive deeper into REITs, real estate, and anything else we cover in the newsletter.

Event Details

• Format: Live Zoom Q&A

• Date & time: Monday 10/05/2026 at 1PM EST

• Access: Free and exclusive to subscribers, but registration is required. Click here to register and secure your spot!

• Spots available: Only 300 — first come, first served

How It Works

• You will be able to ask questions live in the Zoom chat during the session

• You can also leave your questions in the comment section below in advance — I will try to answer as many as possible

• If you cannot attend live, I will post a recording afterward for all subscribers

Reserve Your Spot

Due to limitations in our Zoom plan, we can only accommodate 300 participants for the live session.

If you would like to attend live, please reserve your spot as soon as possible — click here to register.

Looking forward to seeing many of you there!

Jussi Askola, CFA

This week, we continue to buy the dips.

As always, we are not attempting to perfectly time the bottom. That is impossible. Instead, we are gradually making small additions across a number of our favorite REITs as opportunities present themselves.

Our focus is on REITs that have suffered significant share price declines, but still have strong balance sheets, high-quality properties that are in-demand, and compelling long-term growth prospects.

There are a lot of attractive opportunities right now, and so rather than make one big bet, we think it makes more sense to slowly accumulate larger positions over time while valuations remain depressed.

This week, we are buying two REITs for our Retirement Portfolio, two for our Core Portfolio, and two for our International Portfolio.

Why We Are Buying the Dip

We recently published a detailed Market Update explaining why we think that the latest selloff is creating a particularly attractive buying opportunity.

You can read the full Market Update by clicking here.

Until recently, the market had been expecting the Fed to remain on pause. But following the escalation of the war in Iran and the resulting surge in oil prices and inflation, expectations have rapidly shifted toward additional rate hikes. REITs, as you would expect, have sold off as a result.

But importantly, we don’t think that this changes the long-term thesis.

The inflationary surge remains overwhelmingly driven by energy prices. Core inflation has continued to follow a much more encouraging disinflationary trajectory, and most major categories outside of energy are showing either stable or falling inflationary pressures.

We therefore continue to view this primarily as a geopolitical energy shock rather than the beginning of a new structural inflationary cycle.

Even more importantly for REITs, the surge in interest rates is making new real estate development increasingly difficult.

Construction lending has already fallen sharply, development pipelines have collapsed across a number of property sectors, and every additional month of high rates makes it harder for developers to justify new projects.

This creates an interesting paradox.

Higher interest rates are clearly negative for REIT valuations in the short run. But at the same time, they are extending the period of limited new construction, which should strengthen the pricing power of existing landlords in the years ahead.

The market is focused almost entirely on the first part of this equation. We think it is underestimating the second.

That is why we are buying, but we aren’t buying just any REIT.

We particularly like REITs that:

• Have suffered unusually large dips.

• Have strong balance sheets and therefore aren’t heavily exposed to higher financing costs.

• Own properties that remain in strong demand.

• Operate in sectors where new supply is likely to become increasingly constrained.

• Trade at significant discounts to the value of their underlying real estate.

Here are the six names we are buying this week.

Retirement Portfolio

Agree Realty Corporation (ADC)

We are buying more shares of Agree Realty.

ADC has been hit particularly hard in the recent selloff. Its shares have fallen roughly 17% from their 52-week high, making it one of the steeper recent declines in the net lease sector. At the current share price, its $3.204 annualized dividend translates into a yield of roughly 4.8%.

We recently had the opportunity to interview ADC’s management, and the key point is that very little has changed fundamentally. You can read the interview by clicking here.

The business continues to perform exceptionally well.

Its portfolio was 99.8% leased at the end of the second quarter, roughly two-thirds of its rents came from investment-grade tenants, and AFFO per share grew by 7.4% year-over-year during the quarter. Management actually raised its 2026 AFFO-per-share guidance and now expects roughly 5.8% growth at the midpoint.

Its balance sheet is also exceptionally strong.

Debt-to-EBITDA was just 3.7x at the end of the second quarter, and the company had roughly $1.9 billion of liquidity. Importantly, this included about $1.1 billion of already-raised but unsettled forward equity. In other words, ADC has already secured a large amount of the equity capital that it needs to fund future acquisitions.

This puts it in a particularly attractive position today.

Higher interest rates may push acquisition cap rates even higher and improve investment spreads, but ADC does not need to issue large amounts of new equity at today’s depressed share price to take advantage of these opportunities.

It was already acquiring properties at a 7.0% weighted-average cap rate in the second quarter and has raised its full-year investment guidance to $1.6-$1.8 billion.

So you have a REIT with low leverage, a defensive portfolio, strong growth, significant pre-funded acquisition capacity, and a nearly 5% dividend yield.

Yet its share price has dropped sharply.

We think that this is a great buying opportunity.

Camden Property Trust (CPT)

Read more

This is an excellent “buy the dip” opportunity for REITs.

As we explained in a recent Market Update, “the source of the [inflation] problem is not structural. It is a geopolitical energy shock.”

Up until recently, the market had been pricing in an extended Fed pause — in other words, that the Federal Reserve would keep its key policy rate flat through the geopolitical turmoil and energy shock. Then, over the span of a few months, that outlook shifted toward multiple rate hikes through the remainder of 2026.

Paradoxically, this makes us even more bullish on REITs as a long-term investment.

This is for two key reasons:

1. Higher interest rates further delay the recovery in construction pipelines while acting as only a minimal headwind to cash flows. The net effect is positive, because low supply growth matters more than slowly rising interest expenses, especially for modestly leveraged REITs.

2. The current inflationary environment remains overwhelmingly oil-driven, which means that it is highly likely to be... transitory.

These two points come together to create an optimal buying opportunity for REITs. The market is pricing in “higher for longer” interest rates, even though inflation and rates are likely to come down over the next few years. Meanwhile, the market isn’t pricing in any of the benefits of a constricted development pipeline.

Let’s first look at the point that this inflationary surge is overwhelmingly oil-driven.

Rising CPI Is Still Fueled By Oil

There are many ways to measure consumer inflation. The headline CPI rate is perhaps the primary way people refer to inflation in the US, but one could also exclude the volatile food and energy components of the CPI via the “core CPI” metric. That latter metric is particularly useful today, because it omits all oil-related items and thereby gives a view of consumer prices outside of the obvious oil shock.

While the headline CPI continues running hot, core CPI has actually resumed its disinflationary trajectory:

The Cleveland Fed’s Inflation Nowcast projects that September 2026 inflation will still be around 3.5% for headline CPI and 2.4% for core CPI.

In other words, outside of the energy category, the pre-Iran war disinflationary trend remains in place. Although there are concerns that higher oil prices (especially for diesel, a critical input for goods transportation) will eventually trickle into higher prices of non-energy items, there is very little evidence of that happening at this time.

Businesses don’t raise prices the moment some of their volatile input costs go up. Aside from pass-through products like oil-to-gasoline, consumer price hikes tend to be done when businesses believe their customers will absorb them without demand destruction.

But today, with gasoline prices high and the personal savings rate at an ultra-low 3%, the American consumer is scarcely able to absorb non-energy price increases without demand destruction.

Here’s the table showing CPI categories:

As you can see, the overall 3.4% year-over-year growth rate is overwhelmingly driven by the energy category, especially “fuel oil” at a 52% YoY growth rate. Nothing else jumps out as inordinately high or low.

And to be clear, the oil shock is basically a geopolitical shock.

Before the start of the Iran war, US crude oil prices hovered around $60 per barrel. Only because of the conflict, and the resulting constriction of the Strait of Hormuz, have oil prices surged.

And, as you can see in the chart on the right above, it was only after this surge in oil prices that interest rates began soaring higher.

We do think that heavy bond issuance from hyperscalers has contributed to the increase in interest rates, but the primary catalyst of the recent upward trend was the war in Iran.

While we could go through each item of the CPI to demonstrate the lack of inflationary impulse, we will instead just focus on three broad categories that together account for the vast majority of the CPI index.

Food (Blue), Goods Ex. Food & Energy (Green), and Shelter (Red) YoY:

As you can see, food (groceries and restaurants), goods excluding food & energy (cars, furniture, appliances, apparel, medical products, etc.), and shelter/housing are all showing either stable or disinflationary patterns.

Housing definitely looks disinflationary, because the 50-year high in apartment deliveries over the last few years will take time to be fully absorbed. Until vacancy rates return to the mid-single-digits, rent growth will remain minimal.

After some price increases in the wake of the”Liberation Day” last year, the general goods category also seems to be cooling down.

Meanwhile, the food category is showing no upward inflection right now. With high gasoline prices, restaurants and food producers know that this is not the optimal time to hike their own prices.

Here’s another way to visualize the broad landscape of consumer price growth:

While the share of CPI components experiencing between 2-4% price growth has risen this year, the share of components experiencing over 4% price growth has recently been falling.

In other words, much of the growth in the 2-4% inflation category has come from components falling out of the >4% category.

It was normal before the pandemic for 50-60% of CPI components to have 2-4% price growth. The current share of 63.5% is only a bit above its pre-COVID average.

It would be worrisome if the share of CPI components experiencing >4% inflation was on the rise, as that would indicate a broad-based inflationary uptrend. That is not what we have today.

All signs point to the current inflationary surge being overwhelmingly fueled by oil prices.

While we cannot predict when the Iran conflict will end, we can state with high confidence that when it does, inflation will decline fairly quickly.

This bout of inflation certainly looks transitory.

Construction Pipeline Remains Constricted

On top of the likely transitory nature of the current inflationary environment, the commercial real estate market is experiencing something truly extraordinary: an outright collapse in the construction pipeline.

You might think we are exaggerating or using bombastic rhetoric here. We are not.

The level of total commercial real estate construction lending almost never declines by more than 0.5% outside of a recession. Even through the COVID-19 pandemic, it barely budged. But over the last few years, amid high interest rates and high construction costs, CRE construction lending has plunged:

CRE lending being down 6.6% from its high may not sound impressive, but keep in mind this is based on a nominal number. When adjusted for inflation, the decline in CRE lending is much more significant.

Here’s another way to visualize the CRE construction pipeline, looking at the four traditional categories of CRE:

While development of retail space was already low, the declines in multifamily, industrial, and office construction have been extraordinary. It is rare to see this deep of a decline outside of a recession.

To be fair, the peaks in construction of apartments and industrial buildings in 2022-2023 were huge, and there was bound to be a reversion to the mean afterward. But the point is that the headwinds of excessive new supply have come to an end.

As long as tenant demand remains strong, most parts of CRE (with a few notable exceptions like lower-tier office buildings) will gradually recover going forward.

Here’s one more particularly striking example of a supply-demand mismatch. Right as the population growth of octogenarians begins to accelerate in the US, the development pipeline for senior housing has effectively stalled out.

This is not for lack of enthusiasm among developers. It’s simply due to high interest rates and construction costs.

National average occupancy at senior housing has already surpassed 90%. The longer the supply pipeline remains constricted, the higher that percentage will go, which will allow operators to continue pushing up rent rates and entry fees. This, in turn, will allow senior housing REITs to maintain high organic growth rates for even longer.

While the market tends to price REITs as nothing more than bond proxies, these businesses actually abide by the economic laws of supply and demand just like any other.

That’s why analysts project a sharp uptick in cash flow growth for US REITs over the next several years.

Yes, higher interest rates are a headwind. And that’s all the market seems to see when it comes to REITs.

But more than offsetting this headwind is the tailwind of a favorable supply-demand environment for at least the next 2-3 years. With every day that interest rates and diesel prices stay elevated, this runway of low supply growth extends longer.

A favorable supply-demand dynamic is more positive for REITs than rising interest rates are negative.

Some Attractive Buy-The-Dip Names

It is truly hard to pick just a few REITs to highlight right now, because many of them are attractive during this current dip.

But we think retail and senior housing offer particularly appealing supply-demand dynamics right now.

Retail looks attractive because there has been very little building in this sector since before the Great Financial Crisis of 2008-2009, while retail sales continue to grow.

In this space, we like Agree Realty (ADC) and Kimco Realty (KIM), both currently yielding about 5% and growing at a mid-single-digit pace.

Both REITs are trading below their 10-year average valuations.

And yet, the supply-demand dynamics for retail real estate look superb.

Between 5% dividend yields and mid-single-digit growth, both REITs could conceivably generate double-digit total returns even without multiple expansion. But it is hard to believe that their valuations won’t rebound once the current oil-driven inflationary surge is over. Thus, we are confident both will deliver double-digit annual total returns.

And senior housing looks attractive because of unavoidable demographic realities: the population of 80+ year olds will grow indefinitely into the future. Meanwhile, senior housing construction remains muted. The next 2-3 years should be extremely favorable for organic growth in this industry.

Our pick in this space would be National Health Investors (NHI), which recently sold most of its skilled nursing facilities in order to concentrate its portfolio in senior housing real estate. Soon, about 1/4th of net operating income will derive from senior housing operating properties (”SHOP”), while roughly 80% will come from some form of private-pay senior housing.

For about two years from early 2024 through early 2026, NHI began to enjoy a higher valuation, but the recent selloff has driven its valuation back down below its 10-year average.

We think this is a great buy-the-dip opportunity, because this REIT should be able to produce mid- to high-single-digit FFO per share growth going forward.

The stock yields ~5.6%, and after the recent SNF portfolio sale, the balance sheet has been significantly deleveraged. Net debt to EBITDA has fallen down to the low-4x area.

Between a 5.6% yield and mid-single-digit growth, NHI could deliver double-digit total returns even without multiple expansion. But again, given the superb supply-demand dynamics in the senior housing space, it is inconceivable that NHI’s valuation would remain depressed below its long-term average like this.

With a reversion to its mean valuation, NHI could deliver annual total returns in the mid-teens.

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Analyst’s Disclosure: I/we have a beneficial long position in the shares of all companies held in the CORE PORTFOLIO, RETIREMENT PORTFOLIO, and INTERNATIONAL PORTFOLIO either through stock ownership, options, or other derivatives. We also own a position in FarmTogether. High Yield Landlord® (’HYL’) is managed by Leonberg Research, a subsidiary of Leonberg Capital. All rights are reserved. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. The newsletter is impersonal and subscribers/readers should not make any investment decision without conducting their own due diligence, and consulting their financial advisor about their specific situation. The information is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The opinions expressed are those of the publisher and are subject to change without notice. We are a team of five analysts, each contributing distinct perspectives. Nonetheless, Jussi Askola, the leader of the service, is responsible for making the final investment decisions and overseeing the portfolio. We do not always agree with each other, and an investment by Jussi should not be taken as an endorsement by other authors. Past performance is no guarantee of future results. Our portfolio performance data is provided by Interactive Brokers and believed to be accurate but its accuracy has not been audited and cannot be guaranteed. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated and may at times use margin and/or invest in companies that are not typically included in REIT indexes. Finally, High Yield Landlord is not a licensed securities dealer, broker, US investment adviser, or investment bank. We simply share research on the REIT sector.

I recently attended the EPRA ReThink Conference in Milan, one of the biggest annual gatherings of real estate companies and institutional investors in Europe.

I already shared my main takeaways from my one-on-one interview with Realty Income (O) CEO Sumit Roy. You can read it by clicking here.

But there were several other interesting takeaways from the conference that I wanted to discuss. I met with and listened to the management teams of a number of European real estate companies and also had the opportunity to exchange views with several large institutional REIT investors.

Here are some of the most interesting points:

Vonovia

Vonovia (VNA / VONOY) is one of our largest European real estate investments, and there were three main takeaways that strengthened my conviction in the company.

• Vonovia’s low property yields make more sense than they initially appear.

One of the biggest points of skepticism surrounding Vonovia is its net asset value. Its EPRA NTA was €46.22 per share at the end of June, compared to a share price of just €17.17 as of September 25. This means that its shares are today priced at roughly a 63% discount to their reported net asset value.

A lot of investors are reluctant to give much credit to this NAV because Vonovia’s properties are valued at extremely low yields. In fact, the number is even lower than I had remembered: Vonovia reported a 3.9% net initial yield for its real estate portfolio at the end of 2025.

A 4% property yield sounds incredibly low if you compare it with an apartment REIT in the U.S. or most other property sectors.

But I think that this comparison misses what makes German residential real estate so unusual.

Germany has a severely undersupplied housing market and rents are heavily regulated. Its vacancy rate was just 2.3% in the first half of the year and its rents grew by another 3.6% organic over the past year, with its German in-place rents rising from €8.05 to €8.32 per square meter.

The important point is that these rents remain well below what an unconstrained market would charge. Therefore, the company has a very long runway to gradually grow rents within the limits of German regulation.

So you aren’t simply buying an asset yielding 4%.

You are buying something closer to an inflation-protected bond where the starting yield is low, but the cash flow is exceptionally defensive and has a very predictable path to continued 3-4% annual growth.

This is very different from a market in which rents can surge 15% one year, developers respond by flooding the market with new supply, and rents then decline during the next downturn.

That distinction gave me greater confidence in Vonovia’s reported property values. The implied yields are low, but there are good reasons why private investors are willing to accept them. Housing is a lower-risk asset class in Germany than elsewhere in the world because it is severely undersupplied and lease rates are deeply below what they would be in a free market. This explains why rents continued to rise in Germany even during the Great Financial Crisis and the pandemic.

• The Berlin election has now taken place, and the political risk has clearly increased, but the economic implications are still more complicated than the headlines suggest.

Read more

We recently published a market update discussing the Fed’s latest rate hike and what it means for REITs.

You can read it here by clicking here.

The short version is that this is clearly a short-term setback for REITs. Higher rates raise borrowing cost concerns, put pressure on property values, and make fixed income more competitive relative to REIT dividend yields. That is why REITs sold off so sharply in 2022 and 2023, and it is why they are again facing pressure today.

But as we explained in the market update, we do not think this changes the long-term thesis. This rate hike was largely caused by a temporary energy shock related to the escalation of the war in Iran. It may delay the recovery, but it does not change the structural forces that have pushed inflation and interest rates lower for decades. It also does not change the fact that higher rates are further reducing new real estate supply, which should eventually lead to better rent growth and stronger pricing power for existing landlords.

This is not our first rodeo. We have gone through periods of interest rate volatility before, and our approach remains the same. As long as the long-term thesis has not changed, we use the volatility to accumulate shares in the REITs that we think offer the best risk-to-reward.

That does not mean that we try to call the bottom. We cannot predict how the market will behave next week or next month. REITs could certainly remain volatile for a while longer if rates keep rising or if sentiment worsens further. That is why we do not put all our available capital to work at once. Instead, we buy in phases, making smaller additions over time as new opportunities appear.

This week, we are adding more capital to two of our Core Portfolio holdings and two of our Retirement Portfolio holdings.

Core Portfolio Addition #1: National Health Investors

We are adding more shares of National Health Investors (NHI).

We will soon publish a full updated investment thesis on NHI, so we will keep this recap short for now. The main reason we are buying more is that the recent dip has created another opportunity to add to a REIT that we think has become much stronger, while the market remains too focused on the temporary earnings disruption caused by its portfolio recycling.

NHI has made several shareholder-friendly moves this year. It completed the sale of 35 master-leased properties operated by National Healthcare Corporation for $560 million at roughly a 7% cap rate, which also eliminated conflicts of interest between NHI and NHC. It has also completed additional dispositions, while reinvesting heavily into senior housing assets, especially SHOP properties. Private pay senior housing is now close to 80% of the portfolio, and pro forma leverage should fall to only about 2.5x debt to EBITDA once recent disposition proceeds are reinvested.

This matters because senior housing is one of the few property sectors where the supply and demand setup is exceptionally favorable. Demand is benefiting from the aging of the baby boomer generation, while new supply remains extremely constrained because construction costs and interest rates are too high to make many new projects pencil out. NHI’s management notes that senior housing supply under construction is now near recession-level lows, at only about 0.5% of total inventory.

The market is focused on the fact that NHI’s portfolio recycling is causing a small near-term dip in FFO per share. We are more focused on what the company will look like after this transformation is complete. NHI will have a cleaner portfolio, lower leverage, much more exposure to senior housing, and a stronger organic growth engine than it had in the past.

Despite that, NHI still trades at a discounted valuation, at just 13.5x FFO, a 25% discount to NAV, and a 5.5% dividend.

This is unusually low for a well-capitalized senior housing REIT. We think the stock deserves a much higher multiple and it will re-rate once the market recognizes that NHI is no longer the same slow-growth triple-net healthcare REIT that it used to be. Management has created a stronger company, but the market has not yet rewarded it appropriately. You may recall that something similar happened with W.P. Carey (WPC) after it sold its office portfolio. The market was first slow to recognize that it had become a higher-quality REIT, giving us a chance to accumulate a larger position, and this ultimately paid off for us.

We expect the same to happen here, and we are using the current weakness to buy more. We expect 30-50% upside from here.

Stay tuned for our new investment thesis.

Core Portfolio Addition #2: Sun Communities

Read more

The Fed has now delivered the rate hike that the market had increasingly come to expect. After a period of falling inflation, improving sentiment, and renewed expectations for lower rates, we are now dealing with another setback. This is not what REIT investors wanted to see, and the immediate market reaction makes sense. REITs are interest rate sensitive, and when rates move higher, investors quickly start worrying about borrowing costs, cap rates, property values, and the relative appeal of fixed income.

This is why REITs sold off so badly in 2022 and 2023, and it is also why the sector has recently come under pressure again. Higher rates hurt sentiment almost immediately, even before they have any material impact on the actual cash flows of most REITs. Investors see higher Treasury yields, assume higher refinancing costs, apply lower multiples, and move capital away from real estate. That is the short-term mechanism, and there is no point in denying it.

But I think it is important to keep some perspective here. Our REIT thesis had been playing out. REITs have already recovered strongly from their late 2023 lows, rising by close to 50% as inflation moderated, rate cuts began, and capital slowly started to return to discounted real estate.

The recovery was not complete, and many REITs were still trading at historically low valuations, but the direction was clearly improving. Had the rate-cutting cycle continued without interruption, I think REITs would likely already be trading materially higher today.

Now that recovery has been delayed. The question is whether it has been destroyed. My answer is no. The rate hike is a setback, but I do not think it changes the long term outlook for inflation, interest rates, or REITs. To understand why, we need to understand what caused this rate hike in the first place.

Why The Fed Hiked

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I recently attended the EPRA ReThink Conference in Milan, one of the biggest annual gatherings of REIT executives and investors in Europe.

During the conference, I had the opportunity to sit down one-on-one with Realty Income (O) CEO Sumit Roy.

We discussed a wide range of topics, including the advantages and disadvantages of Realty Income’s enormous scale, its push into data centers, the rapid expansion of its private capital business, its growing European platform, and how management thinks about the company’s long-term growth potential.

Here are my main takeaways from the discussion:

• The VEREIT acquisition was even smarter than I had appreciated: Realty Income acquired VEREIT in 2021 in a roughly $17 billion transaction. One aspect of the deal that I had overlooked was how it helped Realty Income solve its office problem. By combining its own office assets with those acquired through VEREIT, Realty Income was able to create enough scale to spin substantially all of these assets into Orion Office REIT (ONL). This allowed Realty Income to get rid of most of its single-tenant office exposure very early, without simply dumping the properties into the market and suffering major dilution. In hindsight, the timing was excellent because single-tenant office properties subsequently became much more challenged. To me, this is a good example of Realty Income’s management being very smart and creative to not just create value, but avoid potential losses.

• Scale has drawbacks, but it is also opening doors that smaller REITs simply cannot access: One of my biggest concerns about Realty Income in recent years has been whether it has become too big for its own good. At its current size, it needs to invest billions each year just to move the needle. Roy did not dismiss this concern and seemed very conscious of the disadvantages that come with scale. But he also highlighted an advantage that I think investors tend to overlook: Realty Income can now participate in enormous transactions without creating major concentration issues. Data centers are a perfect example. A single hyperscale data center transaction can involve billions of dollars, making these investments impractical for most net lease REITs. Realty Income, on the other hand, has the balance sheet and diversification to participate at scale.

• Data centers could become one of Realty Income’s most important growth verticals:

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