When it comes to Real Estate Investment Trusts (REITs), the main focus is generally on cash flows and the dividend payout. But with the impact of the novel coronavirus, the investment process has gotten more challenging. The result is that there has been an increase in volatility with REITs to buy.
Then again, this presents opportunities for investors. The valuations have gotten more reasonable and the long-term prospects of many REITs still look promising. After all, real estate is not as correlated to other asset classes.
What’s more, these companies have lucrative tax benefits, such as with depreciation charges. These allow for higher cash flows.
Then there is the provision that makes dividend distributions tax free so long as at least 90% of earnings are distributed. This is perhaps one of the most lucrative parts of the U.S. Tax Code.
What are the interesting REITs to buy right now? Let’s take a look at seven.
STAG Industrial (STAG)
Getty Realty (GTY)
Healthcare Trust of America (HTA)
Agree Realty (ADC)
Healthpeak Properties (PEAK)
CoreSite Realty (COR)
Vanguard Real Estate ETF (VNQ)
Dividend Yield: 4.3%
Stag Industrial (STAG) is focused on single-tenant, industrial
properties across the U.S. The company owns 450 buildings
that span 91.4 million rentable square feet, which include warehouse/distribution buildings, light manufacturing facilities, flex/office locations, and digital buildings.
One of the key advantages for STAG stock is that the costs for maintenance and upkeep for industrial facilities is fairly low, which has led to strong FFO (Funds From Operations). This not only has allowed a strong dividend but also sufficient capital for expansion.
Keep in mind that the market is massive in the U.S. According to STAG’s analysis, it is about $1 trillion. Yet the company only has about 0.5% market share.
STAG has held up during the pandemic. During the latest quarter, the company reported an occupancy rate of 97% and collected 98% of its base rental billings and granted rent. But of course, a big driver for the business is e-commerce, which has seen an acceleration in growth.
STAG Industrial
Dividend Yield: 4.9%
Getty Realty’s (GTY) origins go back to 1955, starting with
the ownership of just one gas station in New York City. But it
would see strong growth driven by acquisitions. For example, in the mid-1980s, the firm acquired the Texaco distribution and marketing assets from Getty Oil Company.
As of now, Getty Realty has 946 properties in 35 states in the U.S. Some of the brands include BP (BP), Exxon Mobil (XOM), ConocoPhillips (COP), and Valero Energy (VLO). For the most part, the locations involve leases for convenience store and gas station operations. The operators are responsible for the taxes, maintenance, repair, insurance, and other operating expenses.
When the pandemic hit, GTY stock plunged. It went from $32 to $17. Yet Getty has proved to be quite resilient, as the shares have recovered much of their losses.
In the latest quarter, the company reported that collections were at 98% for July and short-term deferrals were only 0.6%. According to CEO Christopher J. Constant on the earnings call: “Regarding COVID-19, I can report that to date, even though the pandemic has had a profound impact on the U.S. economy in general, it has not had any meaningful negative impact on Getty’s financial results. Our strategic focus on essential segment of the retail economy, the strength of our portfolio and the efforts of the entire Getty team have resulted in strong quarterly performance for our company.”
Getty Realty
Dividend Yield: 4.9%
Healthcare Trust of America (HTA) is a large property
management and leasing operator of medical locations.
The company has roughly 24.9 million square feet under management.
HTA invests primarily in outpatient facilities and the focus is on high-quality operations. To this end, the properties are in key markets that have favorable demographics. There is also an emphasis on areas where there is strong growth, such as in academic medical locations.
In the meantime, HTA should continue to benefit from the aging of the population. From 2016 to 2026, the category for those over 65 will increase by 37% and account for more than 19% of the U.S. population.
Despite all this, HTA stock has languished over the years. But this has made the shares a value opportunity, especially since the dividend yield is 4.9%.
Healthcare Trust of America
Dividend Yield: 3.5%
When it comes to evaluating REITs to buy right now, one of
the riskiest sectors is retail. The category has definitely been
under pressure from ecommerce juggernauts like Amazon
(AMZN), but the pandemic has also led to a string of bankruptcies.
But there remain some interesting opportunities for investors. One of the REITs to buy is Agree Realty (ADC). Founded in 1971, the company invests in community shopping centers in 46 states. There are currently 936 properties and they account for 18.4 million square feet of gross leasable space.
A key to the strategy is partnering with top-notch retailers, such as Walmart (WMT), Home Depot (HD), and TJX Companies (TJX). As a result, Agree Realty has had a stable rental base during the pandemic. Consider that the collections rate was 94% in July, up from 90% in the second quarter.
The company has also seen steady increases in the dividend, with the latest hike at 5.3% on a year-over year basis. The current yield on ADC stock is 3.5%.
Agree Realty
Dividend Yield: 5.4%
Healthpeak (PEAK) invests in private-pay health care real
estate. In all, the company has 636 properties that span
the following categories:
Healthpeak Properties
Dividend Yield: 4%
The cloud computing market is one of the fastest growth
sectors of tech. According to Gartner, the spending is
forecast to go from $266.4 billion in 2020 to $354.6 in 2022.
And with the impact of the pandemic, this growth is likely to accelerate.
A way to play this megatrend is to invest in data center REITs. These firms own and manage the facilities for companies that need access to cloud services.
Of the data center REITS to buy, there is CoreSite Realty (COR). Founded in 2001, the company has built an extensive platform that covers markets in Los Angeles, San Francisco, New York City and Chicago. Note that there are more than 1,350 and the total square footage of the facilities is over 4.6 million square feet.
Consider that the company has some major barriers to entry. For example, much of the dense interconnection systems are already owned by data center providers and building new ones can take over a decade.
What’s more, COR stock has been a nice source of dividend growth. Since 2014, the quarterly payout has gone from 36 cents per share to $1.22 per share. Currently, the yield is at 4%.
CoreSite Realty
Dividend Yield: 4.3%
Another way to get exposure to REITs to buy is with an ETF
(Exchange-Traded Fund). This provides diversification
and liquidity.
A good choice is the Vanguard Real Estate ETF (VNQ), which invests in equity, mortgage, and hybrid REITs in its portfolio. Note that the ETF tracks the performance of the MSCI US REIT Index (it has 137 stocks that represents about two-thirds of the market). Some of the top holdings include American Tower (AMT), Prologis (PLD), Crown Castle International (CCI), and Equinix (EQIX).
A major advantage of VNQ stock is the low expense ratio, which is only 0.10%. This means that investors get a higher share of the profits as dividends. As for the current yield, it is at about 4.3%.
Vanguard Real Estate ETF
Life Sciences: Biotech continues to be in the growth phase and these companies pay top dollar for specialized facilities. As for Healthpeak, it has properties in the key markets of San Francisco, Boston and San Diego.
Medical Offices: These are for outpatient health services and the properties on the campuses that are No. 1 or No 2. in their he local markets.
Senior Housing: The company has over 27,000 units across the U.S.
Healthpeak has a strong balance sheet – with $2.8 billion in liquidity and a reasonable debt structure — which allows for consistent growth. Keep in mind that there is a $1.1 billion development pipeline that is 50% pre-leased.
While the senior market segment has felt pressure from the coronavirus, the other parts of the business have made up for some of the slack. In fact, the forecast for the second quarter is that collections will be about 99%.
Dividend Yield: 5.4%
Healthpeak (PEAK) invests in private-pay health care real estate. In all, the company has 636 properties that span the following categories:
As of this writing, Tom Tauilli did not hold a position in any of the aforementioned securities.
