Real estate investment trusts (REITs) that primarily invest in office properties had a heck of a ride in the past year as COVID-19 sent workers home and balance sheets into a tailspin for many. Now, with the pandemic mercifully on the wane, it's a good time to look for some investment opportunities among office REITs, although one must choose carefully.
Nareit lists 21 office REITs that as a whole posted a 2020 total return of -18.44%. But don't be lulled into inactivity because of this generalization or assume all is well, since that segment has turned positive (posting a 1.35% year-to-date total return and nearly 5% in February).
Each REIT has its own market and level of dependence on people actually coming back to those spaces -- and that's just for starters. There's a lot to consider.
We'll make it easy for you to start, with a look at two good candidates. We chose one with a tenant base full of big pockets in traditional ventures and another that's in about as go-go a vertical as there is right now: life sciences.
They are Highwoods Properties (NYSE: HIW) and Alexandria Real Estate Equities (NYSE: ARE). While they're different in size and scope -- the former with a $4.5 billion market cap and a focus on traditional office properties in the Eastern states; the latter with a $23 billion market cap and a nationwide portfolio -- they do share this: a history of providing steady income to investors and the experience to take advantage of growth opportunities in their chosen niches.
Here's a bit more.
Alexandria Real Estate Equities
San Diego-based Alexandria, by its own description, engages in "owning, operating, and developing collaborative and dynamic life science, technology, and agtech campuses in key urban innovation cluster locations."
That engagement includes playing host to some of the leaders in addressing the current pandemic -- just one example, it's a major landlord for Pfizer (NYSE: PFE), including for the vaccine maker's Manhattan headquarters.
Alexandria bought that property in 2018. Then the pandemic hit, putting even more oomph into the demand for collaborative, integrated space for companies and academics, and others to work in person. Science by Zoom (NASDAQ: ZM) has some serious limitations, turns out.
Even if and when COVID-19 is gone, healthcare and related sciences should continue to be a growth market, and at least for now, a very hot one. Here's a March 29, 2021, article about Alexandria losing one signed tenant committed to filling an 85,000-square-foot building in Rockville, Maryland, and replacing it with another -- pretty much on the same day.
Alexandria has been paying regular dividends since 1997, most recently forking over $1.09 a share for the first quarter of this year, marking a 36.25% dividend increase since the same point five years ago.
Alexandria stock was trading at $166.17 a share midafternoon on March 30, providing a yield of 2.58% based on an annual dividend of $4.36 per share. That share price was 7.58% below its 52-week high of $179.79 reached on Dec. 17, 2020.
Highwoods Properties, headquartered in Raleigh, North Carolina, owns, develops, acquires, leases, and manages properties primarily in what it terms the BBDs (best business districts) of Atlanta; Charlotte, North Carolina; Nashville, Tennessee; Orlando, Florida; Pittsburgh; Raleigh, North Carolina; Richmond, Virginia; and Tampa, Florida.
Highwoods has a diversified portfolio of 27 million square feet and a tenant base that has paid 99.7% of its rent so far during the pandemic, creating annual revenue most recently of $720 million. The 10 largest tenants comprise only 21.7% of its rental income. The top two, as of mid-February, were the federal government at 4.3% and Bank of America (NYSE: BAC) at 4.1%. Following that: tire maker Bridgestone Americas (OTCMKTS: BRDCY) at 2.8% and Metropolitan Life Insurance (NYSE: MET) at 2.6%.
That includes a new trophy property, the 33-floor Bank of America Tower at Legacy Union in uptown Charlotte. The newly built 841,164-square-foot building is anchored by Bank of America and is adjacent to Bank of America Stadium, home to the NFL's Carolina Panthers.
The company was founded in 1978, went public in 1994, and declared a dividend of $0.48 for the fourth quarter of 2020, the fifth-consecutive payout of that amount, after paying $0.475 for five quarters before that and $0.463 quarterly for four quarters previous. Very consistent.
Highwoods Properties stock was trading at $43.76 a share midafternoon on March 30, providing a yield of 4.4% based on an annual dividend of $1.92 per share. That share price was 4.64% below its 52-week high of $45.89 reached on June 5, 2020.
The Millionacres bottom line
Office REITs may well again regain their status as a predictable, even bland, segment of the commercial real estate investing world, but a post-pandemic new normal hasn't emerged that can guide the way. That's why equities in companies that have proven themselves resilient through the initial crisis while positioning themselves for a domestic and global economic rebound are worth taking a close look at now. These include Alexandria Real Estate Equities and Highwoods Properties.