 Good day, fellow investors. One of the most requested asset classes for me to look into have been REITs, and that is because REITs have been the best performing asset class over the past 20 years, delivering double the return of the SAP 500 and quadruple the return the average investor has obtained. If we look at this 20 year annualized returns chart from JP Morgan, we can see that REITs delivered 9.9 percent over the last 20 years, that is per year, the SAP 500 5.6 percent and the average investor 1.9 percent. This is extremely important because it emphasizes Benjamin Graham's quote that the investor's chief problem and even his worst enemy is likely to be himself. Why did the average investor achieve only 1.9 percent while the SAP 500 almost 6 percent and REITs 10 percent? Well, the average investor usually buys high in exuberance and sells in panic. I know a lot of people that bought in 2007, sold in 2009 and some never got back in the market, some bought back in 2014, 2015, 2017. That is really, really opposite of what you should do, but that's how the average investor does things. So don't be an average investor and we're going to look at REITs to see whether in the long term we can still expect a 10 percent average return. We're going to look at the pros and cons of investing in REITs. I'm going to explain how things work and I'm going to look not in this video but probably on Sunday I'll discuss Simon Property Group, the largest mall outlet REIT in the United States and the company offers actually a potential 10 percent long-term return in line with what REITs have delivered over the past 20, 40 years. So I looked at it, I looked at it deeply, you'll see that in the other video, but there is actually something to look at and something to look forward to because 10 percent is a great return, plus you have real estate, inflation protection and all of the things that go alongside real estate and REITs and Simon Property Group has only Class A malls and outlets, which means high quality real estate. But that in the coming video on probably Sunday or even tomorrow, I cannot know yet. Let's start with what we'll discuss today. Why did REIT do that good over the past 20, 40 years? Then we're going to discuss what impacts REIT as investments from interest rates and then it's not just about the dividend, it's also about the capital appreciation, the increase in prices. If inflation is 2 percent, you can increase your rents to percent, your revenue goes up to a percent, which is also something that many investors overlook when it comes to investing and looking at REITs. And then I'm going to give you a few, four I think pros of investing in REITs and eight cons just to give you a perspective on what best fits you as a personal investor, an individual investor when it comes to investing in REITs. It's always about personal preferences. You see how something fits your portfolio, your long-term investment goes. And I really believe that many of you will be appealed by REITs because it might fit your long-time horizon risk-reward investment strategy. Let's start. So why did REITs do that good over the past 20 years? The main reason REITs did good are interest rates. In 1999, from where the chart on performance measured the performance from JP Morgan, interest rates have gone mostly down. If you had $100,000 in a savings account in 1999, you would get $6,000 in interest. Since then, the interest on savings account really declined from $6,000 to the current $2,000. But for the majority of the last decades, it was below $500, below 0.5%. Now, as interest rates have increased a little bit, and you can get 2%, 1.5% on savings accounts, also REITs have suffered. If we look at the REIT ETF, just a good proxy to look at performance, we can see that REITs didn't do that good from 2016 to the beginning of this year when the Fed was hiking interest rates because people then compared the dividend yield to other interest rates options like treasuries. But since the Fed capitulated, since Powell capitulated and decided not to hike rates anymore, then REITs really came back to the previous excellent performance. So REITs are clearly interest rates place. If you can get 5% on a five-year treasury, you are going to want a little bit more from a REIT. However, that REIT is not only a dividend, it is inflation protection, it is real estate ownership, and then depending on the REIT, the quality of the REIT, the sector it plays, it might deserve a premium or a big discount. We'll discuss that. If we look at the iShares core US REIT ETF, it has a yield of 3.5%. So if interest rates go to 6%, it will possibly happen in the next 10-20 years because inflation might come whatever, the value of this REIT would probably REIT ETF would probably half because investors would expect then a 7% distribution yield. And that's the game with REITs. If that happens, that wouldn't be a tragedy because you can then reinvest the dividends for a 7% yield, which is much higher than the 3.5% yield, which means that your long-term returns would be even higher because as we know, when stock prices crash, if you have the money to reinvest or add to the position during time, if you invest on a monthly basis, your long-term returns would be even better. On the dividend and returns you can expect from REITs, there are dividends, there are buybacks, and there is capital appreciation, and there is growth. So it's not only dividend, but when you look at REIT, you have to look at, okay, of course, the buybacks, some property group is doing buybacks 2 billion over the next two years. So that's 1.7% per year on top of the 5% dividend yield. Then you have capital appreciation. If the real estate owned go up in value, that's another return you have to expect. And there is growth. REITs can always borrow money, do acquisitions, as long as the price you pay on the borrowed money, the interest rate is, let's say, 3%. And the yield on the real estate you bought is 5%. The spread between the cost of money and the return on the investment is what makes REIT grow, grow its dividend, and do well in business. So there are four things you have to look when looking at REITs. Dividends, of course, buybacks, growth, capital appreciation, real estate quality, that's already 5%, and that all is summarized with the funds from operations. When you manage a real estate, then you see, okay, this is the rents that come in. These are the costs that I have to pay to manage everything. And what's left in the interest rate is funds from operation. This is different from net income. We know that REITs have to pay out 90% of net income. This is different from net income because funds from operations don't include a charge depreciation on real estate that is included in net income. And that's a non-cash charge, which means that if you see a REIT with net income of 100, and the funds from operations could be 140, 150, because the 50 charge that lowers net income is depreciation, which means it's not a cash outflow at the moment, and therefore the REIT has more cash to distribute. We're going to see with Simon Property Group that the stock, the company has 66% dividend to funds from operations pay out. So there is 36% of cash flows that the company reinvest and retains for future growth. So that's something added to the real estate appreciation, to the dividend, to the buybacks, and therefore the growth. So those are the four key things you have to look when analyzing REITs, not just dividends. So let's start with the pros of investing in REITs. The first pro is somebody else does the work for you. You don't have to clean toilets, you don't have to collect rents, you don't have to worry about anything. You simply buy the stock, that's it, you see what is your income tax, you have to pay on that, and you are exposed to real estate. Number two, REITs, if they pay out 90% of their net income in the form of dividends, are not taxed as corporations, thus they pay no corporate income tax. However, you are taxed on that income personally, so you have to see how the income, the dividend you get from REITs, would hit you personally. Depending where you live in the world, depending how that is structured, ask your broker, find the tax advisor, or simply test it for a quarter, see what's the dividend in and see what you can pay, see what the government, where you live, how they categorize that and then see whether it is worth to invest for you in REITs or not. If you have a non-taxable account as many in the US have, then REITs might be a great option for the long term. Number three, real estate offers inflation protection because it is relatively fixed, especially good real estate properties will always go up in price. You see San Francisco, you see New York, what's going on there with real estate? So I always think, okay, is that the densely populated area, will the demographics improve? And if that happens, then it's very likely that as the world goes on, as governments print more and more money, as there is more demand for those real estate, that the value of those real estate will go up and give you inflationary protection in relation to all the money printing that has been going on over the last 10 years and will probably continue to go on during the next recessions and crisis because everybody likes to print money today. And we have discussed that in the monetary policy-free video with Ray Daily. Number four, liquidity. You can simply sell your real estate REITs with one click on your mouse, that is something you cannot do with real real estate. And it is much more complicated to sell real real estate. Now on the cons, there is eight, but those are not weighted. So you have to see just how those things fit your portfolio. As we already mentioned, there is interest rate risk. If interest rates go up, people will compare the dividend yield on REITs with other things and the price of the REIT, the stock price might go down, plus the cost on the debt leverage might go up for the REIT, which means that their profit margins might get squeezed and therefore that would not be a good situation for some REITs, especially those that have variable debt in comparison to those that have long-term fixed interest rate debt that would actually benefit from such a situation. Number two, interest rates, REITs usually use a lot of leverage as they have to pay out 90% of net income. Some REITs also pay out 90% of funds from operations. It means that all the growth, everything that they do has to be leveraged. And when that happens, if there is a crisis, if there is a credit crunch, a lot of REITs might be in tough situations. And we see those REITs offering 5, 8, 10, 15% dividend yield. And then you know, okay, there might be trouble. So it's very important to dig deep into the debt files of the REIT. How is that secured? How risky is the company before investing in individual REITs? Number three, there is a lot of competition. There are lots of REITs and everybody is targeting good projects. So it means that the price of a good project, if you want to build something, is usually at the start very, very high. So you cannot buy a bargain or it's very hard for big REITs to find a bargain and say, okay, this is a great investment. And then say, okay, until we don't find anything, we will not grow, we'll not invest. Wall Street is always growth, growth, growth, growth. So high competition, high prices, lower returns, lower margins. And plus, you cannot invest directly in real estate. If you know an area very, very well, specific real estate investments might give you 30, 40% on the day you buy the property. That's something you cannot do with REITs because those that are discounted are usually troubled. So that's at least what I found until now. If there is something different than a fund, I'll report it of course. Number four, most people already own a home, perhaps an apartment unit, rental unit or something like that. And this means that adding REITs to the stock market portfolio would increase your real estate exposure. And we know we have seen from 2008 to 2013 that real estate prices don't always go up. And in some areas of the world, you see real estate prices still much, much lower than the peaks in 2007. Number five, the dividends are taxed as income. So see how that fits your strategy. See whether you have a non-taxable investment account. Number six, some REITs are being hit hard. Think of retail given the e-commerce influx. But on the other hand, there are some REITs that will do really, really good 5G REITs, data storage and something like that. So we'll look slowly sector by sector and then see where we can find the best tailwinds. And number eight, there is always the risk of a recession when it comes to every investment. So if there is a recession, occupancy levels might go down, releases might go down to keep the occupancy higher. So the spreads might be lower, refinancing might get tougher from some REITs, which is always a risk. But as we cannot time a recession, a recession should have already happened five years ago, if you listen to all the projections, then you simply accept it by cheaper if you have quality and that's it. So to summarize this video about REITs dividends, yes. Funds from operations, where does the money go from the difference between what is paid out in dividends and what's left in cash flows? So buybacks, growth, refurbishment, increased prices of REITs, and then the quality of the real estate to see whether in the long term, the real estate prices will go up and thus your return will be emphasized by capital appreciation. Thank you for watching. Looking forward to your comments, we'll be discussing more REITs. Probably I'll do one video summarizing my findings on REITs per week. So please subscribe if you want to know more about REITs, about finding the best REITs for your long term investment portfolio. Thank you and I'll see you in the next video.