Realty Income Corp (O)

In the US, they have a whole group of REITs called “Triple Net REITs”. This is where they will basically go to a company and say “You own your building and I will buy it”. It gives a cash inflection, but in exchange for that you would want a long lease. Because of these very long safe leases, all the expenses are in the hands of the tenant, so it is a very safe cash flow stream, like a bond. However, we are going into a point in the interest rate cycle where you perhaps do not want to be owning a bond. Dividend yield of 4.1%.

Triple-net, meaning that they buy a building that is occupied and owned by the tenants, in exchange for a long-term lease. A very low risk, but very bond-like. They’ve been doing well recently with the collapse in interest rates. However, when interest rates reverse you don’t want to own this. Considering that this and bonds in general have had a great run, this is probably not the time to be buying.

This is a great time for REITs. They have been phenomenal creators of value. You need to really focus in on high quality ones. All of them, no matter how good, suffer from a rate rise risk. Cap rates are pretty low now and real estate has done extremely well. There are a lot of good reasons to suggest they are good companies, but the timing is tough. Broadly speaking, in real estate, he feels this is a cycle we are going into now. Anybody who is in the brokering side of it, as opposed to the operating side, you are probably a little bit better off. You could consider CBRE Group (CBG-N) which should work a little bit better for you.