It’s been a rough go for real estate investment trusts, or REITs, since March. The onset of the novel coronavirus pandemic led to pressure on a number of end markets.
Mortgage REITs have struggled, with the iShares Mortgage Real Estate ETF (BATS:REM) off 29% over the past year. Travel-related REITs, notably hotel operators, have in many cases plunged, with dividends suspended across that industry.
The same rise of remote work that led stocks like Zoom Video Communications (NASDAQ:ZM) to soar has dented owners of office buildings; Boston Properties (NYSE:BXP) dropped 36% over the last twelve months, losing almost $8 billion in market capitalization over that stretch.
It’s tempting to look at the big dividends offered by many REITs and see value, but there are risks across the industry. That said, there are opportunities as well.
Some REITs have weathered the crisis just fine. A few have even benefited. Most have maintained their dividends, offering yield at a time when short-term interest rates sit at or near zero.
Investors picking the right names in the group still have a chance to do quite well in 2021 and beyond. Here are four REITs with solid dividends and the potential for upside in the short- and long-term:
- Digital Realty Trust (NYSE:DLR)
- Landmark Infrastructure Partners (NASDAQ:LMRK)
- Rexford Industrial Realty (NYSE:REXR)
- Global Net Lease (NYSE:GNL)
4 REITs That Pay You to Own Them: Digital Realty Trust (DLR)
The case for DLR stock is relatively simple: it’s one of the best Big Data plays out there. Digital Realty owns nearly 300 data centers in 23 countries. Its facilities are the physical backbone of the cloud.
Of course, the shift to the cloud has only been accelerated by the pandemic. Yet DLR hasn’t benefited all that much as yet. DLR stock is up 11% over the past year. That rally lags the market as well as the 22% rise in larger rival Equinix (NASDAQ:EQIX).
Because of the growth potential, DLR stock doesn’t have the same cheap valuation or high dividend yield other REITs have, but a 3.1% yield still provides some income. The 23x multiple to 2020 adjusted FFO (funds from operations, a common measure of REIT profitability) is hardly onerous. All told, DLR seems to provide a nice combination of growth and value.
Landmark Infrastructure Partners (LMRK)
Small-cap Landmark Infrastructure Partners has a unique, and almost odd, portfolio.
Despite a market capitalization of just $320 million, Landmark has three different businesses. It owns and leases data centers, wireless towers and rooftop sites, and billboards and digital advertising signage.
This isn’t a case where the company does a lot of things, but none well. Customers include the four major wireless carriers, tower operators American Tower (NYSE:AMT) and Crown Castle (NYSE:CCI) and the biggest utilities and outdoor advertising players.
All of Landmark’s end markets should show some growth. Meanwhile, Landmark continues to acquire new properties which will drive income in the future. Yet LMRK stock offers a yield of 6.5%, and a price-to-FFO multiple (based on the last four quarters) around 9x. Landmark might have an odd story, but it’s also an attractive one.
4 REITs That Pay You to Own Them: Rexford Industrial Realty (REXR)
Rexford Industrial Realty doesn’t look like much at first glance. The company operates industrial assets in Southern California in so-called “infill markets,” generally smaller lots that are squeezed among larger, existing properties.
But in recent years, REXR has been one of the best stocks in the entire market, let alone among REITs. REXR has more than tripled over the past five years, a performance more usually associated with tech stocks than real estate plays.
There could be still more upside ahead. REXR stock is flat over the past year despite management’s insistence that the pandemic has had basically zero impact on the business. Given Rexford’s successful strategy so far, this seems like a management team worth listening to.
Global Net Lease (GNL)
GNL stock still hasn’t recovered its losses from the March sell-off. Perhaps it should.
The owner of industrial assets seems to be holding up rather well. The company collected 97% of its rent in both the third and fourth quarters. 65% of customers have investment-grade credit ratings, which leaves plenty of leeway if the economic contraction lasts longer than expected.
Meanwhile, Global Net Lease has a diversified portfolio, with minimal customer concentration and facilities in the U.K. and Europe. But with the stock down 18% over the past year and yielding 9.5%, there seems to be a path to upside.
There are risks here, as the yield itself shows. But among high-yield REITs, GNL looks like one of the better “return to normalcy” plays.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.