In the days immediately following the Brexit vote, the U.K.’s June 23 decision to leave the EU caused some of the most volatile markets in recent memory. U.S. equities fell 3.7% the day after the historic decision and 2% the following Monday. The Friday loss was one of the worst one-day declines since 1999.
How volatile did markets get?
The Russell 3000 saw its volatility increase more than two-fold, from 9.9% prior to the vote to 22% after two days of significant declines, a level of volatility not seen by the index since February of this year.
Meanwhile, U.S. Equity real estate investment trusts barely moved, down 1.1% on Friday, June 24, and flat on Monday, June 27. Total returns for REITs have seriously outperformed the broader markets since the February volatility — REITs are up 24.3% compared to 13.2% for Russell 3000 since Feb. 11 — while volatility has actually declined, highlighting the importance of owning different asset classes.
Investors who put half their portfolio on Feb. 11 into listed-equity REITs and half into the Russell 3000 achieved returns 37% higher than if they’d put it all of it in the index while also reducing the volatility by 9% over the same time frame.
Sometimes you can have your cake and eat it too.
3 REITs to Buy: American Campus Communities (ACC)
Dividend Yield: 3.2%
Student housing is big business. Yet, the top 25 owners of student housing hold just 6.5% market share in the 280 Tier-1 universities that American Campus Communities, Inc. (NYSE:ACC) targets across the U.S.
ACC is targeting 10% market share or approximately 630,000 beds, yet it currently has just 96,000 beds or 1.5% of the 6.3 million students at those Tier-1 universities.
The potential for growth is significant.
Since ACC went public in 2004, it’s seen its enterprise value grow from $351 million to more than $9 billion currently — that’s an annualized growth rate of around 31%. In that time it’s gone from 16 properties in 12 markets to 163 properties in 71 markets. And yet it still has more than 500,000 beds to add to achieve its target market share.
Currently, ACC’s development pipeline is just less than $1 billion with 2016 projects underway totaling $307 million and 3,200 beds, another $470 million and 6,100 beds in 2017, and $133 million and 6,200 beds in 2018. With almost 98% average fall occupancy and 2.5% annual rental rate growth, these new projects when completed will add approximately $127 million in revenue. That translates into a 15% increase in annual operating profits.
Higher education pays.
3 REITs to Buy: Equity Lifestyle Properties (ELS)
Dividend Yield: 2.1%
As its name Equity Lifestyle Properties, Inc. (NYSE:ELS) implies, it’s an owner and operator of lifestyle-oriented properties across the U.S. and Canada. ELS owns the land on which customers place manufactured homes, cabins, cottages or RVs on a permanent, long-term or short-term basis.
With 387 properties and almost 150,000 sites to lease to customers looking for a cheaper home alternative than the usual resort communities found across the country, Sam Zell’s other REIT provides investors with stable and sustainable growth.
Quite simply, ELS is a play on demographics.
The average age of new residents of manufactured housing is 59 years old, while it’s 55 for RVs. With the 55 years or older crowd in this country expected to grow by 26% from 2016 to 2031 and 10,000 baby boomers turning 65 every day through 2030, ELS has a captive audience to draw upon.
Don’t like the 2.1% yield? While it’s not the greatest when it comes to publicly listed REITs, you’re not buying ELS stock for the income. Capital gains are what you’re after here. Since its 1993 initial public offering, ELS delivered a cumulative total return of 2,855% compared to 639% for the S&P 500 Index in the same 23-year period.
With the demographics in its favour, expect ELS to deliver market-beating returns in the future, despite trading at or near its all-time high of $81.54.
3 REITs to Buy: Landmark Infrastructure Partners LP (LMRK)
Dividend Yield: 7.9%
Earlier this year I covered five REITs that are different than the typical offering. One of those companies was Outfront Media Inc (NYSE:OUT), an owner of more than 370,000 digital and static displays in 180 markets in the U.S. and Canada. OUT owned the billboard paying rent to the building or landowner to erect their signs promoting third-party advertisers. A simple but effective business model.
Landmark Infrastructure Partners LP (NASDAQ:LMRK) flips that on its head. LMRK owns the property upon which a billboard owner’s sign would sit. Collecting rent for billboards, cell towers, and renewable power generation sites, it has 1,443 sites available for rent across the country.
With triple net leases in difficult to replicate locations, LMRK is able to raise rents without capital expenditures, providing the ultimate in predictive cash flow. Currently, it has 97% occupancy at its sites with 87% of the rent from Tier-1 customers.
Occasionally, however, things do go wrong.
In 2013, T-Mobile US Inc (NASDAQ:TMUS) acquired MetroPCS, a cellular company that rented 23 sites from the company. T-Mobile terminated all but two of those contracts, leaving the company with a big hole to fill along with a $2.8 million impairment on the lost revenue.
A bump in the road, LMRK stock is up 20.5% year-to-date through July 15 and ready to climb above its November 2014 IPO price of $19. But like all micro caps, be prepared for greater volatility than one finds with mid- and large-cap stocks.
As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.