Video Update - Tariff Instability Favors Our REITs

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The broader market continues to show signs of instability amid growing concerns about new tariff implementations. President Trump has announced plans to impose a 25% tariff on Mexico and Canada, along with tightening chip restrictions on China. Despite these developments, the S&P 500 remains in a strong uptrend, although it is currently testing the intermediate-term trend line at approximately the 100-day moving average.

Investors should be cautious about making significant bets on technology through the S&P 500, given the current valuation of approximately 30 times earnings, alongside the potential impacts of new tariffs and trade restrictions. This high valuation level suggests potential vulnerability in the broader market.

REIT Market Performance

The REIT sector has experienced a pullback as interest rate expectations shifted to "higher for longer" rather than the anticipated five or six rate cuts. However, REITs have now stabilized and remain significantly underpriced relative to the broader market and current interest rates.

Our REIT portfolio strategy differs substantially from broad-based index approaches:

• Our portfolio currently yields over 6%, compared to the index yield of 2.7%

• We focus on REITs with outstanding dividend growth prospects

• All our selections trade at steep discounts to net asset value

Interest Rate Environment

The 10-year Treasury note has seen upward pressure in recent days, reflecting several economic concerns:

1. Potential economic weakness due to announced federal layoffs, with the administration targeting 300,000 positions which could impact up to one million workers including contractors

2. Ongoing geopolitical tensions including Ukraine-Russia conflict and Middle East instability

3. Safe haven buying due to uncertainty

Despite these concerns, key economic indicators remain surprisingly robust:

• Retail sales continue to grow at a pace exceeding inflation

• Corporate capital expenditure plans remain strong across multiple surveys (Kansas City Fed, Philadelphia Fed, NFIB, New York Fed)

• Manufacturing is the primary weak spot, particularly in Texas which serves as a good national proxy

The manufacturing sector faces twin challenges: overall weakness coupled with rising input prices, creating both margin pressure and inflationary concerns. This complicates the Federal Reserve's path forward on rate cuts.

The Case for REITs as a Core Investment

Historical data consistently demonstrates that REITs have been the top-performing liquid asset class available to the public since 1972, outperforming both stocks and bonds. Their performance has been particularly strong during inflationary periods like the 1970s.

REITs have proven resilient through most market downturns, with the exception of the Great Financial Crisis (which was specifically triggered by real estate issues). This exceptional long-term performance suggests that REITs should constitute a much larger portion of investment portfolios than the typical 5-10% allocation recommended by many financial planners.

The fundamental strength of REITs lies in a simple economic reality: regardless of economic conditions or industry trends, businesses need physical space. They pay rent for offices, manufacturing facilities, retail locations, healthcare facilities, and more. This creates a durable income stream that benefits REIT investors through various economic cycles.

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