While the commercial real estate sector has been on fire since the depths of the Great Recession, office REITs haven’t necessarily experienced the same amount of torrid growth as their counterparts. A relatively sluggish and slowly grinding economy has weakened hiring and kept unemployment at high levels.
Naturally, this fact has hindered the owners of office buildings.
However, that all could be changing. After another recent bullish jobs report, the purveyors of cube-farms and other office buildings could finally be hitting their stride. Hiring is up, rents have finally stabilized as have occupancy rates. All of which are bullish signs for the prospects of office REITs.
For investors, that means the office REITs — and their juicy dividends — could finally belong in their portfolios.
Here’s three office REITs to buy for big dividends.
Office REITs To Buy #1: Piedmont Office Realty Trust, Inc. (PDM)
Market Cap: $2.7 billion
Dividend Yield: 4.7%
When it comes to operating office buildings, the key is making sure you’re in the top areas of stability and growth. For office REIT Piedmont Office Realty Trust, Inc. (NYSE:PDM), that means owning Class A buildings in nine of the largest U.S. office markets, including Boston, Atlanta, L.A. New York and Washington, D.C.
More importantly, about 73% of its tenants in those areas are either governmental tenants or large, nationally-recognized companies. There’s relatively no “fly-by-night” renters for PDM’s buildings.
In fact, PDM’s buildings are a pretty hot commodity. The office REIT is in the process of selling Chicago’s second-tallest building — the Aon Center — for more than $650 million.
That sort of stability has helped Piedmont on the cash flow side since rebounding after the Great Recession. For its latest earnings report, PDM saw its funds from operations (FFO) grow and beat analysts’ expectations. For all of 2014, PDM reported FFO of $230.1 million, or $1.49 per share.
That leaves plenty of room to raise its dividend and has helped with recent analyst upgrades.
Office REITs To Buy #2: Government Properties Income Trust (GOV)
Market Cap: $1.6 billion
Dividend Yield: 7.7%
We’re all familiar with the old adage, “There’s nothing certain in life, except death and taxes.” As far as the second half of that saying, the government is a pretty reliable tenant — and Government Properties Income Trust (NYSE:GOV) is a unique play on that fact.
The office REIT is almost 100% focused on renting to the federal, various state and local government agencies and officials. GOV owns 72 different properties across 31 states and Washington D.C.
The office REIT features very high occupancy rates — greater than 94% — with many of its properties being continuously occupied by government tenants since the properties were first acquired, developed or redeveloped. That’s made GOV a reliable dividend machine.
That’s also part of the problem of problem for GOV investors.
For all intents and purposes, leasing to the government is boring — especially when those leases are for 20 years or more. As a result, GOV’s yield and payout hasn’t changed since 2012. It still pays out 43 cents per quarter despite having some room to do so.
With that in mind, the office REIT is all about getting a high dividend today rather than a growing one.
Office REITs To Buy #3: Liberty Property Trust (LPT)
Market Cap: $5.2 billion
Dividend Yield: 5.5%
Office REIT Liberty Property Trust (NYSE:LPT) could be seen as a total play on the growing economy. That’s because LPT not only owns office buildings, but various warehouses, distribution centers, light manufacturing and research/development facilities. All in all, LPT owns more than 750 properties in many top suburban markets across the nation.
The huge size alone makes LPT an interesting office REIT play. However, the story is getting better for LPT.
That’s because Liberty is going through a transformation. LPT continues to shed non-core and free-standing office buildings and plowing those proceeds into more office parks that hold both industrial and office buildings. That’s helped LPT shed the funk of being a suburban office building owner.
This “funk” has caused LPT to have the same quarterly dividend payment — 47.5 cents — since 2009. But the funk maybe shifting. With its latest earnings report, LPT managed to record a better than expected increase to its FFO. That increase could finally mean that the office REIT could increase its dividend in 2015.
In the meantime, investors can collect the juicy 5.5% dividend yield.
As of this writing, Aaron Levitt had held no positions in any of the aforementioned securities.
