With the presidential election decided, it’s time to take a look at some sectors to see which stocks might offer opportunities to profit. Certainly, one has to look at real estate investment trusts. There are many types of REITs, but one thing they all have in common is that their underlying real estate must generate revenue on an ongoing basis.
There is a general perception that a Trump presidency will be good for the overall economy, and so REITs should benefit in general, as well.There is concern that rates will rise, but the economy has to improve before that happens.
Nevertheless, finding which REITs to buy means that the REITs need to have pricing power incorporated into their rental schemes to offset potential interest rate increases, or have rock-solid ongoing tenancies.
With that as a backdrop, here are three suggestions for REITs to buy in a Trump presidency.
REITs to Buy in a Trump Presidency: Easterly Government Properties Inc (DEA)
Dividend Yield: 5.15%
Easterly Government Properties Inc (NYSE:DEA) invests primarily in government-leased buildings. Who better to lease to than a client with infinite resources that will never go bankrupt? DEA properties are all handled through the General Services Administration which has been leasing up a storm for the last twenty years.
Now, within the federal government, which agencies would REITs like DEA most love to lease to? Those offering essential services, like the FBI and ICE. These two agencies alone account for about 21% of total lease income.
Thus, even if Trump pulls way back on government spending (which isn’t at all guaranteed), these two divisions won’t be cut back. If anything, ICE will see increased budgets.
Sure enough, DEA has 100% of its properties leased out with an average term of 7 years. The idea that DEA is insulted from interest rate increases comes from the fact that, because these agencies are pretty central to the nation, DEA can raise rents as needed to offset rate risk.
REITs to Buy in a Trump Presidency: Corporate Office Properties Trust (OFC)
Dividend Yield: 3.86%
Sticking with this same theme, I’ve come across Corporate Office Properties Trust (NYSE:OFC) which, despite its name, is actually another REIT to buy that leases a lot of property to the feds. It is super-focused on companies involved in defense and national security.
That means about 30% of the portfolio is leased to the government itself, and another 57% are leased to defense firms like Boeing Co (NYSE:BA). The remaining 13% are leased to big, urban office buildings.
This has led to some great revenue charts for OFC because, despite the sequester (remember that?), there has been a 40% growth in revenue since 2011. It is leasing close to a million square feet per year. Debt is mostly unsecured and first maturity isn’t until 2020.
Sentiment regarding OFC has improved, with stock at $28.80. It hit $19.50 just in the past year.
REITs to Buy in a Trump Presidency: Ladder Capital Corp (LADR)
Dividend Yield: 7.85%
Still, shouldn’t we be prepared for rising interest rates when we consider REITs to buy? Sure, so have a look at Ladder Capital Corp (NYSE:LADR). This is a commercial mREIT, which I generally avoided because anything with the word “mortgage” involved still scares me.
However, LADR is a different beast. LADR drops its capital into the equity and debt of commercial real estate. This sector is doing quite well, there’s a lot of activity and that translates to a need for capital.
I’m not crazy about holding actual mortgage debt, so what I love about LADR is that it will either purchase loans or originate them and either sells them off or holds some with laddered maturities. Best of all, it sticks primarily to senior secured loans.
Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, he has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.