Real estate investment trusts are no longer plain vanilla, offering investors the typical assortment of real estate: retail, residential, healthcare, office, industrial and mortgages.
For example, today, companies like Penn National Gaming, Inc (PENN) and MGM Resorts International (MGM) are unlocking the value of their real estate holdings, benefiting themselves, and more importantly, their shareholders.
MGM Growth Properties LLC (MGP), the REIT spinoff of casino operator, MGM, opened trading Wednesday as a public company. It sold 50 million Class A shares to the public at $21, and in the process, raised more than $1 billion from its IPO.
PENN did the same late in 2013, spinning off the real estate assets associated with 21 of its casinos into a separate publicly traded company, Gaming and Leisure Properties Inc (GLPI). PENN shareholders got 1.35 shares in the new company along with $3.33 cash for every share held in the parent company.
Today’s REITs come in all sorts of shapes and sizes. Casinos are but one example of the changing climate in publicly traded real estate.
For those who want to own something different, here are five REITs that break the mold.
Best REITs That Break the Mold: Government Properties Income Trust (GOV)
Dividend Yield: 9.5%
On the surface there’s nothing special about Government Properties Income Trust (GOV): It simply owns office space.
What makes GOV special is that it owns 10.7 million square feet of office space spread across 71 properties, 93% of which are rented to government entities such as the Internal Revenue Service and U.S. Customs and Immigration Service. Those two branches of the federal government alone rent almost 2 million square feet from the REIT generating 20% of its annualized rental income — if the IRS can’t pay its bills we’re all in trouble.
In addition to its niche play in government office space, it owns 28% of Select Income REIT (SIR), which owns 44.7 million square feet of office and industrial office space in 35 states, including Hawaii where it’s the largest owner of industrial properties.
Best REITs That Break the Mold: Colony Starwood Homes (SFR)
Dividend Yield: 3.6%
Well, you sure couldn’t say this a few years ago, but without the housing market collapse, there wouldn’t be companies such as Colony Starwood Homes (SFR) to invest in. Billionaires such as Tom Barrack, Jr. and Barry Sternlicht have dumped hundreds of millions into owning homes across the country in anticipation of a recovery that’s now in full bloom.
So, what’s in it for you, Joe investor?
You get a REIT that owns over 30,000 homes in seven different states including some biggies: California, Texas and Florida. It has a 95.1% occupancy on its stabilized portfolio and 94.3% overall. The average monthly rent for occupied homes is $1,506.And with at least 2,700 homes to rent in each of its 10 largest markets and average annual rent growth of between 4.2% and 4.9%, the potential rental income is significant.
But that’s not all SFR has to offer the average investor.
Colony Starwood Homes’ weighted average price appreciation for its homes since they’ve been acquired is 19% over approximately two years compared to 12% for the U.S. as a whole. So, not only is it doing a good job renting these houses, it’s also allocating capital successfully.
The thrill of home ownership is no longer the American dream. People are focusing less on ownership and more on quality of lifestyle; Colony Starwood Homes allows renters to achieve that without the ball-and-chain mortgage around their necks.
At current prices, you are getting paid almost 4% annually ($0.88, 2016 dividend) to sit and wait for home prices to appreciate another 19% over the next two or three years. The dividend was just 28 cents a mere two years ago.
Best REITs That Break the Mold: Outfront Media Inc (OUT)
Dividend Yield: 6.4%
Who owns a billboard? Indirectly, if you own shares in New York-based Outfront Media Inc (OUT), you do.
Formerly the billboard division of CBS Corporation (CBS), Outfront Media owns more than 370,000 digital and static displays in 180 markets in the U.S. and Canada. If you drive to work, you’ve definitely seen one of its signs — they’re everywhere on the road.
It makes money by renting the space on the signs to third-party advertisers who agree to rent for a few weeks at a time to as long as a year. Often it’s recurring revenue with advertisers taking the same space for years on end. But before you decide to get into this business, know that it’s not cheap to erect these signs. A two-sided digital board Outfront is looking to install near my home is expected to cost the company $250,000.
How’s this a REIT you ask?
Well, although it only owns about 10% of the sites where its signs are located, it does own the sign itself as well as the permit that allows it to display the sign in the first place, and that’s a big barrier to entry. But the big reason it qualifies as a REIT is that it leases space to advertisers on its own structures (signs), much like a shopping mall leases space to retailers or apartment owners to consumers.
Outfront’s bread-and-butter are local advertisers such as real estate agents who need to keep their brand out in front of the consumer. Not surprisingly, almost 30% of its revenue comes from the New York City market alone.
Best REITs That Break the Mold: EPR Properties (EPR)
Dividend Yield: 5.9%
There’s money in entertainment.
A lot of things come and go, but one activity that never seems to get old is going to the movies, and that’s why EPR Properties (EPR), a Kansas City-based specialty REIT owns 139 multiple-screen theaters among its $4.6 billion in real estate assets.
In addition to the theaters, it also owns 16 entertainment centers, ski hills, water parks, golf driving ranges and almost 100 schools across the U.S. and Canada.
I’ve liked this stock for some time. It’s conservatively run and consistently growing funds from operations. Since 2010 it’s grown dividends by 7% annually; in 2016, it’s projected to pay out $3.84 per share, and it has a current yield of nearly 6%, despite its stock being within 5% of its five-year high.
You can do a lot worse when it comes to REITs.
Best REITs That Break the Mold: The GEO Group Inc (GEO)
Dividend Yield: 8.1%
Although there are a couple of opportunities in the corrections space, I’m especially intrigued by The GEO Group Inc (GEO), which owns or manages 104 correctional, detention and residential treatment facilities in the U.S., Australia, South Africa and the U.K.
In 2015, it had an annual revenue of $1.8 billion and generated operating profits of roughly $236 million. Interestingly, its long-term debt is almost identical to its annual revenue, suggesting if it wants to grow, at least on the corrections side; it will have to continue to borrow in lock-step with any revenue growth.
But most interesting was its $24 million purchase last May of Soberlink Inc., a California-based manufacturer of mobile alcohol monitoring devices. With the legalization of marijuana throughout the U.S. not too far in the distant future, this kind of technology is going to become a big part of addiction treatment.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.
