President Trump's proposed border adjustment tax (BAT) could could hurt the earnings potential of certain REIT categories, according to analyst Dane Bowler.
BAT is a tax that would boost the economic viability of domestic production and exports while decreasing the economic viability of imports and outsourcing. A BAT is neither doomsday nor instantaneous greatness for America, but it has material implications, Bowler says.
Shopping center REITs and mall REITs would not be directly damaged, but a BAT could bite into their tenants' profits and expansion plans. "Most retailers import more products than they export, making them net importers, so a BAT would cause them to pay more taxes," Bowler writes. The impact could be mitigated by the preponderance of food tenants in many shopping centers that won't impacted by the BAT, he adds.
Another potential victim of a BAT would be hotel REITs affected by a resulting increase in dollar strength that causes a decline in inbound U.S. travel.
Meanwhile, the primary REIT beneficiaries of a BAT would be industrial, farmland, and Canadian REITs with US properties, Bowler writes. "If BAT is enacted, consider buying some industrial and farmland REITs and Canadians should consider getting into US real estate ahead of the decision as the currency adjustment is likely to be swift."