Real estate investment trusts (REITs) are still one of the best ways to generate income in today’s low-interest-rate environment.
Created by Congress as way for regular Joes to own commercial real estate, REITs are required to kick much of their cash flows back to investors in exchange for tax benefits. As a result, most REITs yield in the 4% to 7% range.
With that in mind, many investors — both big and small — have plowed some big bucks into REITS over the last few years in order to capture those lucrative payouts. However, the vast bulk of those dollars have gone into the larger varieties of properties. That’s a shame as there are plenty of REITs operating outside of office towers, shopping malls, industrial warehouses and apartment buildings
These “oddball” REITs still own properties — or at least they do in the eyes of the IRS — just of another type. They offer the same benefits as owning a shopping mall, including those hefty dividend payouts.
For investors, looking outside the box when it comes to REITs could do your portfolio some real good. Here are three oddball REITs paying big dividends.
Oddball REITs Paying Big Dividends: Iron Mountain Inc (IRM)
Dividend Yield: 5.1%
Owning vast salt caverns for document storage may not seem very REIT-like, but renting space in the caves is really no different than renting a storage facility. As a result, Iron Mountain (IRM) was able to obtain a private letter ruling back in 2014 and was officially added to the REITs club.
Today, IRM is the largest document storage firm on the planet serving nearly 155,000 customers in 36 countries on five continents. That includes nearly everyone in the Fortune 1000 as well as various government organizations. The firm also provides digital record storage and secure document shredding services as well.
The kicker for IRM is that its salt caverns are irreplaceable and provide it with a huge moat. As a result, IRM is able to clip steady cash flows and earnings from its operations. More importantly, those cash flows have trickled back to investors through growing dividends. IRM has basically doubled its dividend since becoming a REIT.
And that juicy 5.1% yield could become even better, as its acquisition of rival Recall Holdings has been approved. The bolt-on buyout will instantly boost cash flows of the firm.
When it comes to oddball REITs, there’s plenty of money to be made in Iron Mountain.
Oddball REITs Paying Big Dividends: Outfront Media Inc (OUT)
Dividend Yield: 6.1%
Despite everyone crying that mobile is the only advertising platform of the future, there’s still a ton of billboards lining our roadways, buildings and cities. And according to the IRS, those billboard structures count as rentable real estate and therefore are able to be included as REITs.
Outfront Media Inc (OUT) has taken full advantage of that fact and was the first billboard company to receive a private letter ruling for REIT status. OUT owns hundreds of billboards, bus station signs, bus/railroad wrappers, etc. that it rents out to advertisers.
The key to its business model is that Outfront owns the leases to use and the physical billboard, but not the land they sit on. That frees it from property taxes and provides for extra cash flows.
OUT is also benefiting from renting space on its billboards to wireless carriers. Rather than constructing new towers, adding equipment to existing structures is far cheaper. For Outfront, it provides a way to get two rents out of one billboard.
Now, OUT isn’t without risk as it comes with some high debt. But the firm’s funds from operations are more than enough to cover its dividend and pay its debts. Investors are compensated for the perceived risk with OUT’s 6%-plus dividend.
Oddball REITs Paying Big Dividends: Gaming and Leisure Properties Inc (GLPI)
Dividend Yield: 6.7%
Originally just a spin-off from race track and casino operator Penn National Gaming, Inc. (PENN) to hold its own real estate, Gaming and Leisure Properties Inc (GLPI) has quickly evolved into the largest pure player in sector.
GLPI owns a host of casinos, riverboats and race tracks under long-term operating contracts. Typically, GLPI will do “sale-leaseback” transaction with the managers of the casino, buying the building and then renting it back to the operator. Its latest deal with Pinnacle Entertainment (PNK) is prime example of these sorts of transactions.
The thing to remember is that Gaming and Leisure Properties doesn’t own/manage the gaming, just the facility where it’s held.
That produces a unique and perhaps steadier take on the gaming industry. If a casino goes under, GLPI can just rent out the space to another operator. The REIT just sits back and collects rent.
That steadier nature is evident from looking at its former parent. PENN continues to struggle, while GLPI has plenty of cash flow growth.
Those cash flows have trickled back to investors. The firm has kicked out plenty in special dividends in its short history and has raised its regular quarterly payout 8% in just two years. This makes GLPI one of the most successful oddball REITs investors can buy.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.