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Jussi Askola from High Yield Landlord joins us to discuss mispriced opportunities in the REIT space (0:30) Look beyond dividends, think of REITs as total return investments (3:20) Self storage and healthcare - 2 attractive REITs (5:00) Tenants a major factor (9:25) Cannabis rescheduling good for NLCP and IIPR (10:30) REITs becoming more independent from interest rates (17:30) AI immunity trade (19:10)

Transcript

Rena Sherbill: Welcome to the show for the very first time, long time coming, Jussi Askola from High Yield Landlord on Seeking Alpha. Welcome to the show, Jussi.

Jussi Askola: Thank you very much for having me.

Rena Sherbill: It's great to have you and I feel like if we were going to wait this long, it would be a good time to get you on the show. What with your focus on REITs and there's talk of interest rates going higher and how much that affects the space. Also a lot of questions I think about real estate in general.

If you would introduce yourself to our audience for those of you that haven't read your work on Seeking Alpha before.

Jussi Askola: Sure, thank you. I run a small REIT investment firm called Leonberg Capital. We have a newsletter on Seeking Alpha called High Yield Landlord. I think it's the biggest REIT dedicated investment newsletter. But on top of that, we also work for some institutional investors helping them with their REIT investing. We occasionally work for the REITs themselves.

Most recently, we worked for an Indian REIT called Embassy REIT that's co-sponsored by Blackstone (BX), helping them improve their investor relations. But yeah, our main focus is the REIT market. We are REIT specialists. We think it's a very attractive subsector with often mispriced opportunities as it's a niche that fits between real estate and stocks. And often you get opportunities to buy real estate at a steep discount via the REIT market. And that's why we find it so interesting.

Rena Sherbill: Would you explain in a bit more detail what it means to be in touch with the REITs and how that lends itself to how you talk to institutions, how you talk to retail investors?

Jussi Askola: Our platform here on Seeking Alpha and elsewhere as well has led to a big audience. We are very grateful for it and it has opened a lot of doors for us to talk directly with the REITs.

They're often very happy to come on for exclusive interviews as it gives them exposure to our audience and thanks to that we're able to often have these REITs CEOs come on, hired landlords to discuss their future prospects. It helps us a lot to identify new opportunities. But yes, this access we've gained it in big part thanks to Seeking Alpha and our audience here.

Rena Sherbill: Are there specific REITs that you focus on? How do you choose where to allocate your focus?

Jussi Askola: We have a small team of analysts. We're a team of three people. And we focus primarily on the American market, given that this is the biggest and most best established market in the world. REITs have existed there since the 60s.

But we also look at opportunities elsewhere. At High Yield Landlord, we have an international REIT portfolio with REITs across Europe, but also one in Africa, some in Latin America, in Asia. The REIT market is truly global today. REITs in 40 plus different countries and we are looking everywhere for opportunities.

But the reality is that the REIT market in the US is still by far the biggest and best developed. And for this reason, that's where we have most of our attention today.

Rena Sherbill: And, I guess a two point question, A, how do dividends figure into how you look at the space and B what are the metrics that you're most focused on?

Jussi Askola: REITs are typically perceived to be income driven investments. They are targeted by lot of dividend investors. However, I think that REITs are still, at the end of the day, equity investments, are total return investments.

A lot of people are not aware of this, but REITs over the past 50 plus years period, up until this recent bear market had even beaten the SAP 500.

I think it's a mistake that a lot of investors make to be selecting rates primarily on their dividend yield and their dividend growth prospects. I think that people should look beyond that and think of them as total return investments.

Just to cite a few metrics that we look at will be things like growth in the same property, net operating income. So are the rates able to grow the occupancy rate, their rents?

You may want to look at their debt metrics or their debt to EBITDA, their loan to value. Do they have an under-leveraged balance sheet that perhaps give them capacity to keep investing in growth? Are they able to develop new properties? What are the initial yields on their new investments? Is it resulting in a positive spread over the cost of capital?

These are the type of things that we will look for as we seek to find rates with growth potential, value creation potential. And I think that this is just as important as the dividend itself.

Again, I think it's a bit of a misconception that REITs are just yield driven investments. They have very attractive total return potential as well as the long run, especially if you pick the right ones.

Rena Sherbill: What are the right ones that you're looking at or what are some of the right ones that you would encourage investors to take a look at?

Jussi Askola: There are a lot of opportunities today in the REIT market because the REIT sector has actually been through a bear market for the last four to five years now. And this started with the surge in interest rates of 2022, 2023.

This led to a historic capital outflow from REITs towards fixed income. so valuations are historically low today. So picking just one or two investments is difficult here. But if I had to point a few attractive opportunities the first one that comes to my mind is Shrugard Self Storage (SSSAF).

This is the leading self-storage rate in the European continent, its biggest shareholders public storage, which is the biggest self-storage investor in the world. It owns 35 % of its equity and the rate is heavily discounted trading at a 50 % discount with net asset value and we think that this is in big part because self-storage face some oversupply in Europe of the past few years this led to stagnating rents.

However, importantly, we're expecting a return to faster growth in 2027. The REIT has guided towards FFO per share from 2027 through 2030 by 6 to 8 % annually. And this type of growth coupled with the BBB investment grade rated balance sheet is a very unusual setup for REIT trading at such a low valuation. And this is why it's one of the REITs that we've been accumulating a lot lately.

But if I can maybe point to another opportunity now on the American continent, we just recently invested in a healthcare REIT called National Health Investors (NHI). And we invested in it primarily because the REIT is going through a major transformation.

It's selling its skilled nursing facilities in order to refocus heavily on the senior housing market, which is today undersupplied. It's enjoying high occupancy rates, strong rent growth and because of this the major senior housing rates like well tower at today trading at very expensive valuations of 35 times FFO large premium student net asset values.

However, NHI is today trading at just about 15 times FFO so a steep discount to these larger peers and I think that this is in big part because this transformation has gone unnoticed so far. But as they complete it and they increase their senior housing exposure we expect a re-rating to a higher valuation and while we wait we're earning an attractive 5 % dividend yield.

Rena Sherbill: A, how long do you typically buy and hold? When do you typically sell? What would make you sell on, let's say, those two REITs in particular?

Jussi Askola: We are active investors and what this means is that we will look for undervalued opportunities and typically we have a thesis, we have some specific catalysts in mind that perhaps may help the rate reach its fair value. This may happen over six months, so it may happen over five years.

It really depends greatly, but typically our investment horizon is long. We hold most of our rates for many years.

But as they reach their fair value, sometimes faster than at other times, we will typically sell to then reinvest in the next opportunity to free up our capital since our capital is limited.

If something has reached its full potential, we'll typically free up this capital to then invest elsewhere.

But again, I didn't really answer your question. Sometimes it might be six months, sometimes it's five years.

Rena Sherbill: Depending on how the catalysts work out, depending on how management reacts to things, all the various things that you're looking at?

Jussi Askola: Exactly. Sometimes everything is working out perfectly, but the market just goes against you. I'm a strong believer that predicting what the market will do over the short run is not possible.

When I say short run, I'm not meaning next week or next month or even next quarter, not even next year. It can be even two three years. It's very difficult to predict what the market will do. Everything might work out perfectly and the market may still go against you.

Sometimes the thesis takes quite long to play out, but the nice thing with REITs is that in the meantime, you're earning steady dividend income, typically a fairly sizable yield, which helps to stay patient.

And these REITs are also in the meantime continuing to create value in most cases by growing their cash flows, by improving their balance sheet, by buying back shares and so on.

Rena Sherbill: How much focus do you put on the tenants when it comes to REITs?

Jussi Askola: It is a major factor to consider especially when evaluating risks. some rates are much better diversified than others, some rates have much riskier tenants than others.

To give you an example, in cost us dearly, in which we suffered steep losses, it's Medical Properties Trust (MPT) was heavily exposed to Steward, which was its biggest tenant, representing over 20 % of its rental income and this tenant ended up going bankrupt.

As a result of this, the REIT faced severe difficulties, having to release these properties, having to cut its dividend. We were aware of this risk, but perhaps we underappreciated just how badly Steward was performing.

This loss is a good lesson of how important it is to look at the tenant roster, make sure it's well diversified, as well that the tenants are performing well, continue to grow their business and likely to renew their leases.

Rena Sherbill: Only because I am personally interested and also I have a podcast that talks about the cannabis investing space. Anything that you would say and because of the rescheduling conversation around cannabis, anything to say about the cannabis REITs these days in particular?

Jussi Askola: I think that they are very interesting, especially today because of the reason you mentioned the rescheduling of cannabis. This has the potential to greatly improve the tenant quality, the health of these tenants because the big problems of cannabis REITs like innovative industrial properties and NewLake capital partners in recent years has been that their tenants have been under severe pressure and they face some lease defaults.

This has really hurt their market sentiment. It has led to stagnating or even slightly declining cash flows.

But if cannabis is now rescheduled, these tenants should see their financial health improve drastically already in the near term, improving rent coverage ratios.

And if you now remove these fears of tenant bankruptcies, I would expect a significant re-rating of these rates to higher valuation multiples. And so for this reason, if you're a higher risk tolerant investor, and you're a believer in this rescheduling, then I think it's a very interesting space to be investing in today.

Rena Sherbill: Is it something you're looking at at all or your team is looking at?

Jussi Askola: It is, yes, and we do hold a position in New Lake Capital Partners (NLCP), which in my opinion is the more attractive rate of the two that focus on cannabis. The other one is Innovative Industrial Properties (IIPR).

We think that New Lake Capital Partners is more attractive because it's a much smaller rate. It has built its portfolio much more gradually over time. It didn't have this explosive growth phase like IIPR had when its cost of capital was very low and it was able to raise a lot of equity and buy huge volume of properties.

I fear that the underwriting suffered a bit during this period as the spreads over the cost of capital were so big that they could justify these acquisitions.

But as a result of this, the average portfolio quality is today lower than that of New Lake Capital Partners. They also have more leverage.

What's unique about New Lake is that it's net cash positive, meaning that it has more cash than debt. And I think that this puts it in a great position to now capitalize on these new opportunities.

And yet its valuation is very low trading at about eight times its FFO. It's about in line with the multiple of innovative industrial properties, despite having a better balance sheet and a better portfolio in my opinion.

Rena Sherbill: What else would you say in terms of the sectors or the subsectors under real estate? What has you the most excited in terms of REITs and then also just the space in general, looking at real estate? What has you more excited and what do you think is something that investors should be uber cautious about?

Jussi Askola: So the REIT market is very vast. There are 20 plus different property sectors. They truly invest in every sector imaginable today, including even very niche property sectors like farmland, timberland, billboards, data centers, cell towers, cold storage, cannabis, which we just discussed, and a lot of others. there are better and worse times to be investing in all these property sectors.

Typically, most investors will be looking for a property sector that's undersupplied, that's enjoying rapid rent growth, and all held equal. This probably would be the right approach, but the problem is that the market is not stupid, and when a property sector is performing so well, it will typically trade at the fairly expensive multiples.

For this reason, typically, I'm doing something that may seem counterintuitive, but I will focus on those sectors that are today struggling.

I'm often investing in oversupplied property sectors and the reason why I do that is because most investors tend to be excessively focused on short-term results from my experience.

And as a result of this, whenever a REIT is dealing with oversupply and rent stagnating or declining, the market will often overreact and it will treat these headwinds as if they were permanent ones, when in reality, real estate is cyclical.

When a property sector is oversupplied, eventually property developers lose money. They scale back projects. Eventually the demand catches up to the supply. The market regains balance and the cycle started all over again.

And so with that in mind, the property sectors that are today oversupplied and heavily discounted that I am in which I'm investing heavily include residential, apartment communities, especially in the Sunbelt markets today.

These REITs like BSR REIT (BSRTF), Camden Property Trust (CPT), heavily discounted relative to the net asset value and that's because rents have been stagnating in recent years.

However, I expect rent growth to already accelerate in 2027-2028. So that's an attractive catalyst coming their way.

Another property sector which I mentioned earlier when we discussed Shrugard is self storage, particularly in Europe. It's also a bit oversupplied today and as a result of this I think the market has overreacted with Shrugard now trading at a 50 % discount to its net asset value.

But again as conditions improve, I think this will serve as a strong catalyst for rewriting of the stock. Those are the two property sectors that come first to my mind, residential and self-storage.

Rena Sherbill: Anything else to add about the dividend conversation? how that pertains to investing in REITs in particular? How else to think about it?

Jussi Askola: Yes, well one interesting thing that I would like to point here is that a lot of investors who began investing in REITs, including myself in my early days, make the mistake of going for REITs offering the highest dividend yields.

There are many REITs offering dividend yields in excess of 10 % even. However, studies show that the lower yielding REITs typically tend to outperform these higher yielding REITs over the long run.

It makes sense when you think of it because, again, I just said earlier that the market is not stupid. It may not be perfectly efficient, but it's not completely irrational either. If it's pricing a REIT at a 10%, 12 % dividend yield, that's probably because there are some major issues about the REIT.

Probably its balance sheet is over-leveraged or the management is conflicted and looking to line up its own pockets rather than acting in the best interest of shareholders.

Whenever a REIT is dealing with this type of structural issues, this often leads to eventual dividend cuts and value destruction over time.

And yet, unfortunately, REIT investors tend to often gravitate towards these high-yielding REITs, especially early on as they start investing in REITs. I think that this is probably the biggest mistake investors make.

So it's very important to not get too greedy and just go for the yield, it's much better to earn, let's say, 5 % dividend yield coupled with 5 % annual growth than earning a flat and risky 10 % dividend yield, in my opinion.

Rena Sherbill: And what would you say about, you mentioned earlier that the bearishness in the REIT market was a very much a result from higher interest rates. Now that we see higher interest rates likely coming again, what are your thoughts on the space?

Jussi Askola: Well, the interesting thing is that despite the 10-year treasury rising quite a bit in 2026, REITs have actually had a very strong year so far, rising by 10 % on average so far in 2026. And we haven't even completed the first half of the year.

So this shows that REITs are becoming more independent now from what happens to interest rates. And I think that there are two reasons for this.

The first one is that a growing number of investors now have recognized that REITs truly aren't quite as impacted by interest rates as they seem to believe in recent years.

Despite interest rates rising significantly in 2022, 2023, REITs have actually kept growing their cash flows and dividends steadily in the past few years. And that's simply because REIT leverage is historically low. It's at about just about 35 % LTVs on average. And that's very conservative. It's the equivalent of buying your own home with a 65 % down payment.

And so because rates use solely leverage the impact of higher interest rates really isn't that significant, especially considering that most of their debt has a fixed interest rate and long debt maturities that are well staggered. So that's the first thing.

And then the second reason why I think that rates have been rising now specifically in 2026 is because interest rates obviously are one factor and all else held equal, higher interest rates are a negative thing.

However, all else is not equal. There are other factors. And one big one now in 2026 is the AI immunity trade. The investment firm Hazelview, which is a major institutional investor, according to them, they have explained that REITs are now greatly benefiting from capital rotation from AI disrupted sectors like SaaS companies towards AI resistant sectors like REITs.

As investors are coming to the conclusion that AI could be a huge headwind for a growing number of businesses over the long run, and they look to invest more heavily in AI resistant sectors. And I don't think there's anything better than rates from that perspective, given that they own real assets that remain essential to the survival and prosperity of our society. They are limited in supply. AI will not change the fact that we'll always need a roof over our head.

And so I think that now we're seeing a growing amount of capital make its way into the rate sector as investors look to protect their portfolios from AI disruption.

And given that we're still very early in the AI revolution, I don't think that this will change anytime soon. I think we're still in the very beginning of this. And given that valuations are still low, I think that there is further upside, even if interest rates surge a bit from here.

Rena Sherbill: When it comes to the AI data center conversation, are you paying attention to like earnings calls from those companies in the AI space? Is that something that you're looking at on a micro level, on a macro level? How are you thinking about that, analyzing it?

Jussi Askola: We do, yes. With that said, I think that the issue, unfortunately, today with data center rates is that, again, the market is not stupid.

And seeing this opportunity, it knows that AI is driving a significant demand for these data centers. leading to rapid rent growth. And so naturally, these data center rates have already re-rated a lot higher and now trade at fairly expensive multiples.

And so rather than chase what's hot in the moment, we like to invest in other property sectors that we view as also by beneficiaries of the AI revolution, but where it's not so obvious.

Good examples of that could be, as an example, cell towers. I expect the AI revolution to lead to faster data consumption growth over the long run, as people are using apps like ChatGPT on their phone.

It's very data intensive. We will see also a growing number of cell driving vehicles, eventually humanoid robots. All of this will lead to an explosion of data consumption, forcing the tenants of cell tower rates to invest more heavily in this infrastructure and leading to higher rents over time.

So cell tower rates should also benefit. It's not just data center rates. And there are other property sectors that should also benefit. Cell towers are an example in my opinion because I expect the AR revolution to lead to significant labor market disruption over the coming years, the coming decade.

As people lose their job, this leads to increased mobility. And mobility is one of the leading drivers demand for self storage because as people lose their job and they need to move to find a new one. This leads to this creates demand for self storage. I think self storage could also benefit.

Another example that could benefit that's not so obvious at timberland REITs in my opinion because AI leads to very significant demand for electricity and and this is now leading to more and more timberland renewable energy conversion projects with timberland being turned into solar farms as an example and historically these conversion projects have led to significant value uplifts of up to five times according to Rayonier (RYN), one of the leading timberland REITs.

So my point here is that there many other property sectors that can benefit from the AI revolution, it's not just data center rates.

Rena Sherbill: What would you say about ETFs in this space?

Jussi Askola: I think that if you're going to be a passive investor, ETFs can make a lot of sense. I think probably they make more sense than most closed-end funds.

Those closed-end funds may offer higher yields, but typically this is because they are using leverage and adjusted for the leverage and taking into account the higher management fees. think most of these closed-end funds over the long run have offered worse risk reward than the passive low-cost ETFs that don't have leverage.

And if I was going to be passive, I'll probably stick to one of the very big ones, like the Vanguard real estate ETF (VNQ). I know it has performed poorly over the last few years as REITs went through a bear market, but as a result of this valuation, multiples are now historically low, which I think is a positive sign for the REIT potential returns of the coming years.

And this ETF is heavily invested in the sectors of the future, in data centers, in cell towers, in e-commerce, warehouses, these type of things that I expect to perform really well over the coming decades.

Rena Sherbill: What else would you say to investors looking at the REIT space or investors not looking at the REIT space? What else would you say about the REIT space?

Jussi Askola: Well, I think that something interesting to point out right now today is the fact that M&A activity is really heating up in the REIT sector. In the last three months alone, we've profited from three different REIT buyouts at High Yield Landlord.

These include Whitestone REIT (WSR), Sila Realty Trust (SILA), and National Storage REIT (NTSGF). And there's been many others as well. I think I counted it a few days ago. If I remember right, there's been nine different REIT buyouts so far in 2026.

And in most cases, it's big private equity players like Blackstone (BX), Brookfield (BAM), so on acquiring these rates, paying steep premiums to acquire them.

I think that probably M&A activity is now heating up and these private equity players are really stepping up the investments in the REIT sector because they can probably see light at the end of the tunnel. They can see that the REIT bear market might be coming to an end with REITs already surging by 10 % this year with several catalysts on the horizon, including the acceleration, rent growth in many property sectors going into 2026, the AI immunity trend, and so on.

Rena Sherbill: As a reminder, you run the investment group High Yield Landlord. Where else can investors find your work?

Jussi Askola: We also have a small YouTube channel where I regularly post videos on REIT investing. That's good place, it's just my name, Jussi Askola. But for the most part, we focus on producing content on Seeking Alpha. We produce articles for the public site and then our exclusive research, including all our transactions, our exclusive REIT CEO interviews, our portfolios and so on, exclusive to the members of High Yield Landlord.

Rena Sherbill: What are you mostly hearing from subscribers these days?

Jussi Askola: We are five years into this bear market. So the people who have stuck with us, they are typically very long-term oriented investors.

They understand that when you get the chance to buy real estate at 70, 60 cents on the dollar, so at steep discounts to their fair value, they understand that over the long run, this is probably a very good investment. And so most of them are very excited about this opportunity.

They are focusing on not the next year, they are focused on the next 10, 20 years. given that the valuations are now historically low, you have high quality risk like Shrugard trading at up to 50 % discount to the value of its real estate net of debt. Most of them are very excited about the opportunity.

Rena Sherbill: Anything that you would note about the housing market, either internationally or in the US?

Jussi Askola: The housing market has been oversupplied in the last many years in the US and also in many other foreign markets. And this is the result of the ultra low interest rates that followed the pandemic.

It led to developers starting to build all over the place because access to capital was cheap. And this led to a significant wave of new supply.

2023, 2024, 2025, and 2026 is still a transition year. Now we're seeing the new supply delivery has dropped significantly, which is encouraging for investors.

However, over the past few years, obviously, housing has been tough as an investment if you're a great investor because of these occupancy rates being pressured and rents stagnating or even slightly declining, especially in some of the Sunbelt markets that were hit particularly hard by oversupply. Austin, Texas is one of them.

But again, now, because the market is oversupply and so many developers have lost their shirts, new construction starts have dropped to historic lows by now and new supply deliveries are dropping steadily quarter after quarter.

And it's expected that the oversupply will be absorbed in many markets already by early 2027 and by most markets towards the end of that year, which we expect to lead to then an acceleration in rent growth.

So if you're a REIT investor, you're thinking of housing, of residential REIT investments, the past few years have been tough, but I think that because the conditions were so tough, we're going to have very little new supply over the next few years due to so many developers losing their shirts, interest rates being high, construction costs being too high, and this should lead to much better fundamentals going forward.

Rena Sherbill: I typically ask people at the end of conversations if they have a motto when it comes to investing or life in general. Do you have one?

Jussi Askola: A motto on REIT investing, something that I wrote recently in a Seeking Alpha article is that real estate investors like to say that location, location, location is the most important factor to real estate investing.

And I think that for REIT investor, would say that the most important would be management, management, management. And that's because a REIT might own the best properties. It might have the strongest balance sheet. And yet if its management is conflicted, it will still likely be a very poor investment over the long run.

And then the opposite is also true. A REIT might have very average quality properties. Its balance sheet might be a bit stretched even. But if its balance sheet is very shareholder friendly and brilliant and has a unique strategy, it can do very well over time.

And a good example of that, think, is Modiv Industrial (MDV), which just recently got bought out by another REIT, resulting in attractive returns for shareholders. But yes. Management quality is number one always when evaluating rates.

Rena Sherbill: You're welcome back anytime. I really appreciate you coming on today. Again, your group is called High Yield Landlord. Any final words for our audience?

Jussi Askola: Thank you for having me and I'm happy to come talk about REITs anytime. This is an exciting time in the sector given how poorly REITs have done lately and how low the valuations are and now finally REITs regaining in popularity. I think it's an exciting time to get into the sector and yeah, happy to come talk about REITs at any time. Thanks for the invitation.

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