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Introduction
Investors drawn to income-producing assets often focus on headline yields - “8% here, 10% there” - and assume the payoff is automatic. But in a higher-rate environment (and one where credit risk and valuation pressures are real), yield alone can be misleading. What matters now is whether an income vehicle can hold up when the macro winds shift, spreads widen or book/NAV value erodes.
That’s precisely the lens we apply at The REIT Forum: not just “what yields” but “what survives, withstands and ultimately delivers.” In this piece, I’ll walk through how the backdrop has changed, what attributes count most, how we use our data-driven approach, and how investors can position accordingly.
The Changing Backdrop
We’re operating in an environment where interest rates remain elevated, inflation persists, and credit conditions are less forgiving. That’s caused a number of income-oriented vehicles to face headwinds:
- When cost of funds rises faster than asset yields, margin compression follows.
- When valuations move from “cheap” to “less cheap,” the upside becomes limited - and downside risk rises.
- When book value or NAV isn’t well protected, surprise dips can hit harder in higher-rate times.
In other words: what worked in a falling-rate, low-spread world may not work equally in today’s world. Some of the headline-yield vehicles that looked attractive in prior cycles are now exposed to valuation risk, leverage risk, or liquidity risk.
Defining “Quality” Income Assets
With the backdrop in mind, how do we define “quality” when chasing income? At The REIT Forum we focus on three core attributes:
- Balance-sheet resilience / protective margin
Income vehicles need more than a big yield - they need strength beneath the surface. That means sustainable coverage, manageable leverage, and a buffer against downside. - Valuation margin / discount to fair value
A high yield isn’t helpful if you’re paying full price (or worse). Quality income assets trade at valuations that give you a cushion for execution risk, rate-shocks, or credit stress. - Transparent, model-driven analysis
We don’t rely purely on hope or headline dividend yields. We build models projecting book/NAV values, dividend coverage, reinvestment risk, call risk (in the case of preferreds), and track positions in real-time. If the data doesn’t support holding, we take action.
Putting those together helps us sift through the many income opportunities - and avoid the traps that may look good on paper but carry hidden exposures.
Our Data/Tool Approach (Yes, the Google Sheet)
You know we live and breathe the data. Our massive Google Sheet - dozens of tabs, updated weekly - is central to how we work. Here's how we make it useful:
- We track book/NAV trends across our coverage universe.
- We monitor yield-to-call, stripped yield, credit spreads, and liquidity metrics for preferred shares and baby bonds.
- We compare price to our internal fair-value estimates (which factor in stressed scenarios).
- We log trade alerts and model our positions in real portfolios (so we’re watching what we own).
- We publish weekly updates across sectors (REITs, BDCs, preferred shares) so any member can see the logic behind each trade or shift.
Why does this matter now? Because when yield alone isn’t sufficient, the differentiator becomes discipline and transparency. Being able to see what we’re doing, why we’re doing it, and how the numbers stack up - that’s the advantage.
Strategy: Where to Go From Here
Given the backdrop and the quality-filter above, how should an income-oriented investor act? Here’s our rough road-map:
- Shift from “headline yield” to “sustainable yield + value”
Rather than simply chasing 10% yields, look for yields that are backed by value and have cushion for downside. - Trim or avoid high-yield vehicles without protective margin
If the price is near book/NAV, leverage is high, or dividend coverage is thin - you’re mostly relying on the yield to hold up the downside, which is risky. - Lean into vehicles where you’re paid for risk
That could be select preferred shares or baby bonds trading at a discount, or BDCs with good asset coverage - whatever offers downside-protective yield. - Monitor actively
In this environment, valuations move quickly. We’re updating our models weekly and members are getting trade alerts when we act. If you’re not monitoring, you’re reacting late.
What to Watch & Action Items
Here are three actionable items we’re watching closely - and you should too:
- Rising leverage or asset resets: When companies in the income space increase debt or issue equity at valuations above NAV, that materially shifts risk.
- Call‐risk on preferred shares: Many preferreds look good on yield, but if they’re callable in 6-12 months and the yield to call is low, the upside shrinks and downside remains.
- Book/NAV erosion surprises: If asset values are marked higher than market reality (especially in higher-rate times), you can get blindsided. Watch for asset impairment, mark-down risk, or financing stress.
Conclusion
In a world of elevated interest rates, income investing is no longer “plug and play.” You’ll need discipline, transparency and a sober view of valuation, coverage and risk. Yield alone won’t make up for structural weakness.
If you’re seeking an income-oriented portfolio that can hold up through shocks - not just look good in calm waters - then you’ll want to ask whether your current strategy meets those tests. Because what we’re doing at The REIT Forum is built for precisely that: tools, models, real positions, and weekly updates that keep us honest.
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This article was compiled by my assistant. If there are any mistakes, blame him - I certainly will.
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