Investing in REITs offer investors the benefits of real estate investment along with the ease and advantages of investing in publicly traded stock. (Photo by Shutterstock)
With their tax-advantaged corporate structure, real estate investment trusts are a popular investment for those seeking above-average dividend yields. Several MoneyShow.com contributors see both growth and income potential from a diverse group of REITs focused on such under-the-radar areas as student housing, billboards, casinos and storage facilities.
Easterly Government Properties holds a portfolio that is around 97% backed by the U.S. government, which has never defaulted on a lease throughout its history.
The U.S. government is the largest employer in the world and the largest office tenant in the U.S. Easterly is the only internally managed REIT with a focus on investing in U.S. government-leased buildings.
Easterly sticks to critical missions of the federal government that don’t go out of favor: agencies like the Federal Bureau of Investigation and the Immigration and Customs Enforcement.
The REIT only deals with the federal government, and the new REIT does not have an interest to work with any other government, state or local, because it is not backed by the “full faith and credit” of the U.S. The portfolio is 100% leased and the weighted average age is 11.5 years.
Most of its buildings are office buildings (67%) and the rest are either courthouse/office (6%), lab (9%), VA Outpatient (11%) or others (7%). Because DEA does not lease to state agencies, there are no risks related to appropriations.
Easterly’s acquisition of two VA outpatient clinics marks the company’s entry into an important new market. Meanwhile, the REIT’s latest acquisition is an FBI facility in Salt Lake City.
Easterly is on track to become a “blue chip” REIT. I expect it to generate returns going forward in the range of 12-14% annually. Also, senior management owns approximately 14% of Easterly, providing strong alignment of interest with shareholders (of which I’m one).
We’re investing in a company that owns many of the facilities used to grow legal weed. And we’ll be getting a little slice of the profits from every single grower that’s using those spaces.
The company is called Innovative Industrial Properties, Inc., and it falls under one of our bread-and-butter industries — real estate investment trusts (REITs). It’s still relatively small but is poised to grow exponentially as the legal marijuana market sweeps the country.
It was founded just last year in San Diego to take advantage of the growing medical marijuana markets in the U.S. And it’s grown (right along with all that pot) over the past year into becoming the premier landlord to some of the country’s biggest and best pot farmers.
Typically, the company buys a property that a grower has already established and then leases it back to the grower. This way, IIPR doesn’t have to worry about filling the space and the grower may use the money from selling it to IIPR to expand operations.
. That’s a triple-net lease. In case you’ve forgotten what that is, it means that the tenant is responsible for the maintenance of the facility and any necessary repairs. The tenant also pays the property taxes and insurance. All IIPR has to do is sit back and collect the rent.
The company pays a 3% quarterly dividend and has a ton of room to grow. So, let’s get into this one as soon as possible and start adding those quarterly payments to our growing pile of reefer royalties. Innovative Industrial is a Buy under $25. I have a 12-month price target of $32.50.
Sometimes the first glance at a stock can give the wrong impression. For example, consider the case of MGM Growth Properties LLC. This REIT owns casino properties, where results can be very volatile, leased to a single tenant: MGM Resorts MGM -1.16%
That level of concentration looks very risky for a REIT. In fact, the way MGM set up the REIT for the spin-off has turned this stock into an attractive, stable and growing dividend, total return investment. In fact, we consider this a unique REIT for those seeking dividend safety.
The biggest strength of the MGP to MGM relationship is that all properties leased by MGM are on a single master lease. MGM pays a single annual lease amount to MGP. This prevents the casino operator from, for example, putting one property into bankruptcy to get out of making lease payments.
The lease is triple net with annual rent escalators. MGM also pays most of the administrative expenses of the REIT. MGM Growth Properties currently owns 13 properties operated by MGM.
MGM Growth Properties is also living up to its name, providing attractive revenue and dividend growth since its IPO in early 2016. At the time of the IPO, the annual lease revenue was $550 million.
Now after the last acquisition, revenue will be $757 million, up 38% since the IPO. The dividend rate has grown by 10% compared to the initially planned dividend. I expect another 10% increase in 2018 as the revenues from MGM National Harbor in Maryland kick in.
With a current 5.4% yield and prospects for high single digit dividend growth make MGP a compelling value when compared to other net-lease REITs. Investors have not yet discovered the quality of this REIT, and when they do, I expect the price to rise and yield to drop below 5%.
American Campus Communities, the largest real estate investment trust (REIT) specializing in rental housing for U.S. college students, has underperformed this year, giving up almost 12% of its value.
The stock sold off hard after management lowered its full-year guidance for funds from operation by $0.07 per share. Hurricane-related charges and expenses related to American Campus Communities’ $591 million purchase of seven high-end properties from Core Spaces accounted for some of this downward adjustment.
Excluding these three trouble spots, the REIT’s 57 other markets posted a 98% occupancy rate. In other words, these market-specific challenges don’t appear to extend to the rest of the portfolio.
Despite American Campus Communities’ recent hiccups, we continue to like the higher occupancy rates and lower-risk nature of student housing, as well as the REIT’s focus on pedestrian-friendly and bike-friendly properties within 0.2 miles of major universities. These rental units tend to book up much faster than those in outlying areas and support higher price increases.
More important, American Campus Communities has proved itself a savvy portfolio manager over the years. Recently, the management team has highlighted the strong demand for student housing among international investors.
The REIT has a multi-year plan to skew the portfolio toward schools with marquee sports programs in so-called power conferences and top research universities — colleges with strong enrollment trends and, therefore, housing demand.
With a 4.1% yield and an appealing business model, American Campus Communities rates a Buy up to $45 for patient investors.
is a data center REIT offering everything from move-in-ready spaces with configurable power systems to state-of-the-art customized data centers. This is an enormous opportunity. Businesses, non-profit organizations and government agencies are all drowning in a sea of data.
Why do so many businesses and non-profit organizations turn to Digital Realty? Its data centers are designed, built and operated by professionals with decades of experience. Its 170-plus properties in 11 cities on four continents are centered where customers need them.
And the company has the financial strength to be a stable and reliable long-term partner. The numbers here are already excellent. Digital Realty took in $2.26 billion over the last 12 months. In the most recent quarter, earnings soared 56% on an 11% increase in revenue. Its operating margin tops 25%.
Digital Realty is organized as a real estate investment trust (REIT). This allows the company to avoid the corporate income tax and pass net income straight through to shareholders. So, you’ll collect a 3.2% dividend yield here. However, I see plenty of capital appreciation potential here, too.
Digital Realty has set the global standard for technical real estate, offering a unique ability to acquire, manage and scale-up data center campuses. With the data universe growing exponentially, its centers are fast becoming the corporate world’s go-to storage solution.
Formed in 2013 and based in Greenwood Village, Colorado, National Storage Affiliates is a self-administered, self-managed REIT focused on the acquisition, ownership and operation of self-storage facilities.
Since its formation in 2013, the REIT has expanded its property base more than five-fold to 512 self-storage properties located in 29 states with combined rentable space of approximately 32 million square feet.
The REIT boosted its $0.26 quarterly dividend from the previous period by 7.7% to the current $0.28 dividend payout. This current quarterly dividend converts to a $1.12 annualized dividend amount and yields 4.2%.
Over the 11 quarters since the REIT’s initial public offering in 2015, the trust hiked its dividend distribution amount six times, which is an average of more than twice per year.
The combination of a rising dividend that pays above-average yield and a substantial asset appreciation over the last 12 months has rewarded shareholders with a 33.9% total return. If the REIT pays the same current dividend amount next quarter, the three-year total return will be 123%.
Founded in 1902 and headquartered in Baton Rouge, Louisiana, the Lamar Advertising Company is a REIT that sells advertising space on billboards, buses, shelters, benches and logo plates. With more than 330,000 displays, it is one of the largest outdoor advertising companies in the world.
In addition to its traditional methods of outdoor advertising methods, Lamar Advertising installed its first digital billboard in 2001 and currently offers its customers the largest network of digital billboards in the United States with over 2,700 displays.
The company’s current $0.83 quarterly dividend distribution is 9.2% above the $0.76 payout from the same period last year. The most recent dividend amount is equivalent to a $3.32 annualized dividend payout and a 4.5% dividend yield.