As the year ends, now is a good time to take a look at selling some winners and losers and repositioning your portfolio for the year and years ahead. Because we're here to help, below is a look at three real estate investment trusts (REITs) that could be best buys this month.
They're very different from one another. One is a yield play, the other is the dominant presence in a rapidly emerging market, and the third is a contrarian pick in a beaten-down sector.
They are Annaly Capital Management (NYSE: NLY), Innovative Industrial Properties (NYSE: IIPR), and CorEnergy Infrastructure Trust (NYSE: CORR).
Annaly Capital Management
With $103 billion in total assets and a market cap of about $11.5 billion, New York City-based Annaly Capital Management is one of the larger mortgage REITs (mREITs).
The company makes its money by borrowing money -- typically short-term purchase agreements -- and reinvesting it in mortgage-backed securities, primarily those issued by Fannie Mae or Freddie Mac. It makes its living off the spread between what it pays to borrow and what it earns from its holdings. Annaly also provides financing to commercial real estate owners, invests in non-agency residential credit loans, and provides middle-market lending to private equity-backed businesses.
This diverse strategy has served it well, as the company boasts on its website: "Annaly has a demonstrated track record of outperformance, beating the S&P 500 in terms of total return by over 1.5x since the firm's initial public offering in 1997."
And as for yield, the company declared a dividend of $0.22 per share on Dec. 10, the third consecutive quarter for that payout, giving it a whopping yield of 14.6%. That's not an anomaly for Annaly. This stock has yielded more than 10% per year since 2012.
That current yield is based on a stock price of $8.24 as of Dec. 11, down from a 52-week high of $10.50 but well above its pandemic plunge to a low of $3.51. Its 12-month total return is a more modest 0.23%. But then again, it has a 5-year total return of 59.65% and a 10-year total return of 47.41%, so there's a decent track record.
Of course, a tsunami of foreclosures would batter this portfolio's collateral, but as long as the housing market remains strong, or even steady, this kind of payout seems like a decent bet.
Innovative Industrial Properties
Only in business since 2016, Innovative Industrial Properties has made quite a splash, and there's promise for more. While there are other stock plays in the burgeoning legal cannabis industry, this San Diego-based operation is the trade's first publicly traded REIT.
The company buys industrial properties -- it already has more than 60 of them -- and leases them back to medical marijuana growers under long-term, triple net leases. With a growing roster of states where that's legal, and the accompanying legalization of recreational use, the future seems pretty bright. In fact, there's an argument to be made that IIPR could be a millionaire-maker REIT.
Everything about Innovative Industrial Properties appears to be growing right now. The company has announced more than 15 acquisitions in more than a dozen states just this year alone; its third-quarter revenue, AFFO, and net income available to common stockholders all nearly tripled from the year-ago quarter, and its Q3 dividend of $1.17 per share was about 10% more than the previous quarter and 50% more than the year-ago quarter.
The Dec. 11 closing price of $161.07 is near its 52-week high -- and 8 times what it was five years ago -- and the current yield is only 2.91%, which while not bad may well not be indicative of the growth potential of this issue. Competitors will likely emerge, but Innovative Industrial Properties may well be a formidable player in this growing space for years to come.
CorEnergy Infrastructure Trust
CorEnergy Infrastructure Trust is an unusual REIT. The Kansas City, Missouri-based company owns gas and oil pipeline systems that it operates on a triple net-lease basis. It's relatively small, too, with a market cap of about $117 million and only three major assets.
It's also the first publicly listed REIT focused on energy infrastructure, and as part of that volatile business, it has been hit hard by the pandemic.
The company reported a net loss of $6.2 million in the third quarter and -$2.9 million in adjusted funds from operation (AFFO), yet it still declared a dividend of $0.05 a share. That was the second-straight quarter for that nickel-per-share payout after paying $0.75 per share quarterly since the fourth quarter of 2015.
As for its stock price, its 52-week high and low are $47.56 and $3.56, respectively, and it closed at $8.27 on Dec. 11. Nareit puts CorEnergy's year-to-date return as of Dec. 10 at 79.53%, with a yield of 2.28%.
That all sounds like reasons not to buy, but there's more. The company does have long-term leases with the operators of its three major assets: the Grand Isle Gathering System in Louisiana that includes 137 miles of undersea pipeline that transports oil and water from seven oil fields in the Gulf of Mexico; the MoGas Pipeline System that includes an approximately 263-mile interstate natural gas pipeline system in Missouri and Illinois; and the Omega Pipeline natural gas distribution system that primarily serves the U.S. Army's massive Fort Leonard Wood in Missouri.
These are must-have assets that its tenants simply can't operate without, and they're part of the nation's essential oil and infrastructure that, for now, appears not to be going away anytime soon.
In the company's third-quarter earnings call, CEO Dave Schulte says it has a strong balance sheet of $100 million in cash and expects to announce another acquisition soon, at the same time as it rebuilds its ability to pay dividends.
With its stock price so depressed (along with oil prices overall), long-term contracts newly locked in with customers, and its essential role in an essential business that seems so likely to rebound when the economy recovers from COVID-19, CorEnergy looks like a potentially profitable buy right now.
The Millionacres bottom line
Each of these three issues has its own appeal to real estate investors and very different ways of making money to pay the dividends and maybe drive stock price growth. There are no guarantees in life or the stock market, but all three of these REITs seem like reasonable bets for good things down the road.