A Major Acquisition, Activist Anger, And REITs Are Right Where We Want To Be

The news available for putting together Tuesday’s blog post was pleasantly sparse. But that’s just not the case today. Today, I don’t think I can fit everything in here that I want to, try though I will. That’s why I’m going to start with a bullet-point summary of certain stories, such as how:

  • Activision Blizzard (ATVI) jumped 25% yesterday after Microsoft (MSFT) said it will purchase the legendary but beleaguered gaming company. Fascinating enough, CEO Bobby Kotick – who’s been blamed for the stock’s tumble these past months over allowing a hostile corporate work environment –  will continue to serve as CEO.
  • We already knew Macellum Capital Management wasn’t happy with how Kohl’s (KSS) is managed. But the activist investor really stepped up its game on Tuesday, calling the retailer’s management “incapable” of essentially doing anything right. Moreover, “There is a sense of entitlement on the board... combined with complacency.” Macellum was able to make some changes happen last April, so we’ll see what it can do with this latest aggressive round.
  • International airlines such as Emirates, Air India, All Nippon Airways (ALNPY), and Japan Airlines (JAPSY) have all said they’ll cancel flights to the U.S. over 5G fears – an issue national carriers have already expressed extreme reservations about as well. Their collective concern is that the rollout will wreak havoc on airplane instruments.

Then there’s the letter Giant Food President Ira Kress emailed to shoppers. Thanking them for their patience in the current economic environment, he wrote:

"As our entire region manages through yet another very challenging period caused by several recent weather events and the ongoing effects of the pandemic, we have experienced significant strain on our supply chain."

It and every other grocery store out there, it seems.

More Non-REIT News

The markets, of course, didn’t have a good day yesterday, with the S&P 500 falling 85.74 points, or 1.84%. The Dow dropped 543.34 points, or 1.51%. And the Nasdaq lost the most of the three major indexes at 2.60%, or 386.86 points – closing at its lowest level since last October.

But even its continuing fall from grace paled in comparison to the 3.07%, or 66.37-point, loss the Russell 2000 experienced. Gold, meanwhile, fell 2.70 points, or 0.15%; and crude oil gained 2.03, or 2.42%.

Analysts blame these actions on the Federal Reserve, which is being criticized across the board these days. That censure is both deserved and hypocritical at the same time.

So many professionals and amateurs alike were all-in on the Fed’s policies when the markets were soaring. But now that the to-be-expected consequences of such are impossible to ignore, they’re voicing their displeasure in no uncertain terms.

Incidentally, as Yahoo Finance noted, “high-growth and technology stocks... are bearing the brunt of the market’s jitters” and probably “have a lot more to worry about” from here. That same article also quotes The Wall Street Journal, which calls out:

"...cash-burning technology firms, biotechnology companies without any approved drugs, and startups that listed quickly via mergers with blank-check companies…"

It’s like we’re combining the effects of the dot.com bubble with 1970's-level inflation. Yet Chinese President Xi Jinping told the online Davos conference this week that the Fed shouldn’t change a thing:

"If major economies slam on the brakes or take a U-turn in their monetary policies, there would be serious negative spillovers. They would present challenges to global economic and financial stability, and developing countries would bear the brunt of it."

National pressure is probably enough to keep the Fed committed to rate hikes, however.

The World According to REITs

So what do we do about this? After all, as a Motley Fool report begins, “For most investors, inflation is one of the spookiest words” around. I was personally sent that write-up yesterday, which I very much appreciate. Its findings support everything I’ve been saying for a very long time now.

Titled “Are Alternative Investments the Best Inflation Hedge? Here’s the Data,” it explores whether gold, wine, art, cryptocurrency, and real estate make for better inflation-beating holdings than stocks.

At 26.89%, the S&P 500’s 2021 return beat inflation’s 7% handily, it found. The same goes for bond, wine, and whiskey indexes, but not art’s 58.81% or Bitcoin’s (BITCOMP) 57%. And cryptocurrency star Ethereum (ETH-X) posted a whopping 2,724% gain. That’s intense.

But the report also noted how many of those alternatives “come with risks and volatility,” not to mention specialized trading fees that eat into profits. So if you’re a regular market cowboy who can ride a bucking bronco with the best – and have money to burn to boot – then try them out. But if you’re like the vast majority of investors, I’ll point to another of the write-up’s findings:

"Since 1980, the S&P 500 has beaten inflation in 28 out of 40 years, bonds have beaten inflation in 32 out of 41 years, and REITs [real estate investment trusts] have beaten inflation in 26 out of 41 years. 

"Although bonds were slightly more likely to beat inflation than stocks or REITs over that period, bonds generated a smaller return. 

"Over that period, stocks and real estate had an average annual return of nearly 11%, while bonds saw an average annual return of 7.5%."

Moreover, the S&P 500 did better than bonds 63% of the time (in 41 years), and REITs beat them out about 61%.

More REIT Findings and Updates

Here’s a little more of Motely Fool’s conclusion:

"In 1980 and 1981, when inflation was over 10%, REITs beat inflation, while bonds posted positive returns but couldn’t keep up… The S&P 500 posted nearly a 26% return in 1980 and lost 9.73% the following year as inflation persisted. 

"In short, stocks and real estate can get you through inflationary periods – as long as you hold on – while generating strong returns over the longer term and avoiding the downsides of alternative investments."

REITs are hardly a perfect investment. And you’re almost never going to get rich quick off of them. But you can use them to get rich nonetheless while protecting your portfolio from the kind of wild swings other investments automatically offer. That’s why I continue to report what I report, including these latest updates from The Daily REITBeat:

  • Prologis (PLD) announced Q4 core per-share funds from operations (FFO) of $1.12. And its full-year 2022 guidance is for $5.00-$5.10. It added that Q4 occupancy ended up 80 basis points (bps) from Q3 to 97.4%, and its portfolio was 98.2% leased at year’s end.
  • Whitestone REIT (WSR) named Dave Holeman as CEO to replace the recently terminated James Mastandrea. Mastandrea was also removed as board chairman for the same reasons: violating his employment agreement and failing to live up to company standards. Replacing him there is David Taylor, who was already an independent trustee.
  • Safehold (SAFE) is taking on the Chicago, Illinois, market by recapitalizing 1000 South Clark, a multifamily building downtown.

(Source: The Daily REITBeat)

Brad Thomas is the Editor of the Forbes Real Estate Investor.

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