Last week we looked at six favorite real estate investment trusts. Here, we offer nine more growth & income REITs selected by leading newsletter advisors and contributors to MoneyShow.com, George Putnam, Jim Powell and Tim Plaehn.
George Putnam, The Turnaround Letter
As the market worries about overpriced technology and industrial stocks, one group that has already corrected into undervalued territory is real estate investment trusts.
Several forces have weighed on REIT shares recently. First, rising interest rates, partly because REITs carry higher amounts of debt, which becomes more expensive, and partly because rising rates make bonds relatively more attractive.
Another burden: concerns over rising property supply that could hurt rental income. Changing consumer behavior is also affecting retail-oriented REITs, and any worries about slowing economic growth could further hurt REIT performance.
The REITs below have fallen out of favor. Each has some company-specific issue that we believe will be overcome, along with an attractive dividend yield to collect while waiting.
The Macerich Company (MAC)
Macerich is a high-quality retail mall owner, with properties in densely-populated coastal hub and gateway cities such as Washington, D.C. and the New York metro region. Its malls tilt toward high-end, trendy specialty stores like Apple (AAPL) and Tesla (TSLA) .
These traits have allowed its space to remain 95% occupied with steady rent increases over the past 10 years. Investors' worries about retail malls in general, and Macerich's exposure (albeit shrinking) to Sears (SHLD) , J.C. Penney (JCP) and Macy's (M) stores specifically, have pushed down the company's shares by roughly 33% from its $88 high a few years ago.
Perhaps sensing opportunity, activists including savvy hedge fund Third Point have accumulated shares. In another possible harbinger of things to come, top executives recently inserted a generous severance payment in their contracts that can be invoked in the case of a buyout.
QTS Realty Trust (QTS)
QTS owns 25 data center facilities in the United States, Canada, Europe and Asia that provide the housing, power and security for other companies' computer and network equipment.
Despite renting into a high-demand market, QTS shares have severely lagged peers since its 2013 initial public offering, particularly since February when it reported weak results and outlook leading to a 23% one-day plunge.
While the company has announced a strategic shift toward some promising specialty niches, along with a sizeable cost-cutting program, management has lost considerable credibility.
Activists are starting to circle, mounting an effort to oust the chairman at the May 3 annual meeting. Better leadership and execution could bring a 40% boost to the share price from increased profits and a higher multiple.
Taubman Centers (TCO)
Founded in 1950 by legendary developer A. Alfred Taubman, this REIT has 27 regional, super-regional and outlet malls in the United States, Puerto Rico and Asia. Its malls are among the highest quality and are located in affluent metro communities.
As a result, they have average sales per square foot of more than $800. Despite this outstanding portfolio, Taubman's sub-par operating performance, relatively high expense base, entrenched management and one-off investments in South Korea and China have left its shares to trade at a significant discount to its underlying asset value, which is estimated at nearly $100/share.
Activist and REIT specialist Land & Buildings is leading the charge for major changes that could unlock this value. The strong-willed activist Elliott Management also holds a 4.8% stake.
Jim Powell, Global Changes & Opportunities Report
REITs are widely considered to be poor investments when interest rates are rising. That is correct -- but only for the short term. The inflation that always accompanies higher interest rates will push rents and property prices up -- usually within a year.
Once the inflation juggernaut gets moving, REITs usually become excellent sources of reliable income. Here are some recommendations among REITs that should work as the Fed raises interest rates this year.
Medical properties are almost recession-proof. I don't remember ever seeing a medical building that wasn't fully rented. With the Baby Boomers getting longer in the tooth, I think medical REITs will do very well.
One such REIT is Medical Properties Trust (MPW) , which owns buildings throughout the U.S. and in some foreign countries. MPW now has a very attractive dividend yield around 8%. That's over two and a half times what Uncle Sam pays on its 10-year Treasury bonds.
If you wish to capture the current high yield, you should act while the stock is still recovering from the correction. Because the dividend yield is the dividend divided by the stock's price, as the price goes up, the yield will decline.
For many investors, the "gold standard" REIT is Realty Income Corporation (O) , which manages more than 5,100 properties. The company is diversified over 47 industries. No single tenant accounts for more than 6.8% of its income. Realty Income has an additional attraction that makes it popular with many investors: it sends its dividend checks each month instead of quarterly.
Tim Plaehn, The Dividend Hunter
It is a widely held-but inaccurate-belief that REIT values must fall if interest rates continue to increase. The fact that many REITs increase their dividends over time tells us that these are businesses with the potential for growing dividends and share values even in a rising rate environment.
Since 1995, there have been 15 periods of significantly rising interest rates. Out of those 15, REIT values increased 12, or 80% of the time. In the period from June 2004 through August 2006, the Fed increased rates 16 times. During that period REITs outperformed the S&P 500, 59% to 22%.
The fact is that REIT results are driven more by economic conditions, rising commercial real estate values and the ability of REITs to increase the rental rates on their properties.
We can monitor how well a REIT is performing from its history of dividend growth. Most REITs announce any dividend increases once a year, in the same month each year. You can often get a nice share price gain by buying shares before a dividend increase announcement hits the news wires.
I maintain a database that covers about 140 REITs. I use the database to track dividend rates, yields and increases. Of the 140, about 90 have histories of regular dividend increases, including these three which should announce a dividend increase in April.
American Campus Communities (ACC) owns, manages and develops primarily off-campus student housing properties in the United States. The company owns over 200 properties near 96 college campuses. While some growth comes from acquisitions or development, ACC also realizes 2.5% per year of average rental rate growth.
Since resuming dividend increases in 2013, the payout has been increased by 5% to 6% for five consecutive years. In 2017, Funds From Operations (FFO) per share was in line with previous years.
The current dividend is just 76% of FFO, so another 5% increase is still likely for this year to keep the growth record going. The new dividend rate is announced at the end of April/early May with an end of May payment date. ACC currently yields about 4.7%.
Hospitality Properties Trust (HPT) owns 323 hotels and owns or leases 199 travel centers located throughout the United States, Canada and Puerto Rico. All of the properties are leased to management operators.
In 2017 FFO per share was flat compared to 2016. The previous year, FFO was up almost 8%. The current dividend rate is 58% of 2017's FFO. For the last several years, HPT has been increasing the dividend by about 2% annually. I expect an increase this year of similar magnitude. The new dividend rate has been announced for mid-April, with a late April record date and second half of May payment date. HPT yields 8.5%.
Life Storage Inc. (LSI) owns more than 700 self-storage facilities located in 28 states. Self-storage has been a cyclical REIT sector and growth has flattened over the last year. Life Storage has grown its dividend by an average of 10% per year for the last seven years and increased it by 5.3% in 2016.
For last year FFO per share increased by 2% so investors should look for another single-digit dividend increase. The stock yields about 4.5%.
Tanger Factory Outlet Centers (SKT) has been one of the most consistent dividend raisers, having increased dividends every year for a quarter century.
It was the pioneer in developing factory outlet malls. The company has increased its dividend every year since its 1993 IPO. Over the last five years, the payout has grown at a 10.5% annual compounded rate, including a 5.4% increase last year.
In 2017, AFFO (Adjusted Funds From Operations) per share increased by 4%. With the turmoil in bricks-and-mortar retail, Tanger has stayed conservative with its balance sheet and growth projects.
The current dividend is just 57% of AFFO so a mid single-digit rate boost should be announced again this year. The dividend was announced in early April and will be paid at the end of the month. SKT yields more than 6.0%.