Chris’ note: Remember back in March and April when a string of bankruptcies hit the U.S. banking sector?
Well, that crisis isn’t over. It’s just been simmering under the surface.
Today, you’ll hear from income investing expert Stephen Hester.
His career in the financial market began in the hedge fund industry. From there, it evolved into alternative investment analysis for large financial institutions.
Now, he works alongside friend of Legacy Brad Thomas over at Wide Moat Research.
And Stephen is warning his readers that the commercial real estate sector is about to crash. If he’s right, it will take banks down, too… and trigger a credit crunch.
This could happen as soon as next month. So I wanted to make sure you got a chance to hear his warning…
It’s happening…
Companies are finally becoming aware of the time bomb that’s about to detonate in the commercial real estate market.
And they’re facing tough decisions as they hunker down for what’s ahead.
Last week, a large and well-respected real estate company, W.P. Carey (WPC), cut its dividend for the first time in 25 years.
And as I’ll show you today, it’s a sign of a much bigger explosion ahead in the commercial real estate sector.
So, today we’ll look at what’s going on at this company… why it cut its dividend… and how you can prepare for what’s coming.
First, some background…
Dividend Aristocrat No More
In 2022, W.P. Carey became a Dividend Aristocrat.
That’s a company that’s increased its dividend for 25 straight years.
Only 67 companies in the entire U.S. held this title until last week when that number went down to 66.
Last Thursday, W.P. Carey made a surprise announcement and cut its dividend.
The news sent shockwaves through the commercial real estate sector.
W.P. Carey is one of the largest and most respected net lease REITs in the U.S. with a market value of more than $12 billion.
Net lease agreements are rental contracts that make tenants responsible for paying for property taxes, insurance, and maintenance – in addition to rent and utilities.
That this company chose to cut its dividend after earning the title of Dividend Aristocrat is extremely concerning.
Companies covet this title because it attracts investors who are looking for financially reliable companies. It also attracts income-focused investors.
This is one of the reasons Dividend Aristocrats have outperformed the broader stock market over time.
The problem for W.P. Carey is it also has exposure to the office sector. It’s been ravaged by the work-from-home trend in the wake of the pandemic.
According to global consultancy firm McKinsey, office attendance across the U.S. is 30% below pre-pandemic levels. It says this means a $800 billion to $1.3 trillion wipeout in office real estate as a result.
And then we have interest rates going up. That’s hurting companies with a lot of debt.
A lot of companies are reading the headlines thinking, “Oh, I don’t want to touch this market at all.”
And W.P. Carey is one of them…
Smart Move
W.P. Carey is packaging most of its office properties into a new company.
And to do this it needed more capital – the same capital that could have been used to raise its dividend.
This move frees up W.P. Carey to get rid of its office properties without having to fire-sell them in the open market. And it doesn’t require approval from shareholders either.
The strategy is smart because W.P. Carey gets the office properties off its balance sheet as quickly as possible.
Existing W.P. Carey investors will be given shares of the new company as part of the transaction. In effect, the office properties will now be the shareholders’ problem, not W.P. Carey’s.
And it’s a smart move…
If it held on to the properties, the company would face huge losses in the scenario that’s about to play out.
$21 Trillion “Debt Wall”
In short, commercial real estate companies are facing a “debt wall.”
That debt adds up to about $21 trillion.
As it comes due, the commercial real estate market is going to crash. And the banks are not going to step in to save anyone. As we saw earlier this year, the banks are barely holding on.
The banking crisis isn’t over. It’s just been simmering under the surface.
Banks will refinance loans when companies’ debt comes due. This will trigger a major credit crunch.
And it could happen as early as November 30.
My colleague and I have been working hard behind the scenes to create a system that spots which companies are at the most risk… and how to profit from their downfall.
I recently sat down with our founder, Brad Thomas, to explain what’s going on and how it all ties together.
If you act quickly, you can use our strategy to profit from what the rest of the market doesn’t yet see coming.
Like I said, W.P. Carey’s surprise announcement is just the start. To find out the rest of the story… and make sure your portfolio is set up to profit rather than plummet…go here for the details from Brad himself.
Regards,
Stephen Hester
Analyst, Intelligent Income Daily