The coronavirus pandemic has complicated life for many real estate investment trusts (REITs), but that doesn't mean you can't find good options in the sector. In fact, W.P. Carey (NYSE: WPC), UDR (NYSE: UDR), and Healthpeak (NYSE: PEAK) all offer fairly generous yields backed by solid businesses, despite what's happening on the COVID-19 front. Here's why you should consider buying them right now.
1. Spreading things around
W.P. Carey is a net lease REIT, which means it owns single-tenant properties, and its tenants are responsible for most of the operating costs of the assets they occupy. It's a fairly low-risk approach in the REIT space, with W.P. Carey, and its peers, making the difference between rental rates and capital costs. Generally speaking, W.P. Carey prefers to buy properties directly from companies which then immediately lease them back in what amounts to a financing transaction. The REIT gets a property with a built-in tenant while the tenant raises cash that it can use to pay down debt or invest in growth projects. It's usually a win/win relationship.
That said, W.P. Carey does things a bit differently from most of its peers. For starters, it has a broadly diversified portfolio, with holding in the industrial (24% of rents), warehouse (23%), office (23%), retail (17%), and self-storage (5%) sectors (other makes up the difference). On top of that, roughly 37% of its rents come from outside the United States, largely from Europe. This diversification is key because W.P. Carey also tends to invest opportunistically, putting money to work where and when it sees the best opportunities. In fact, during the depths of the coronavirus downturn, the REIT announced that it was looking to buy industrial assets and has done just that.
If W.P. Carey's diversified and opportunistic approach sounds interesting, then you'll really like the fact that it has increased its dividend every single year since its 1998 IPO more than two decades ago. With a roughly 6.3% yield now could be a good time to jump aboard this unique net lease REIT.
2. Apartment hunting
One of the interesting things taking shape during the pandemic has been the shift away from city living. That's been rough on apartment REITs like UDR, which saw its revenues decline 5.9% year over year in the third quarter of 2020. Indeed, it saw big hits in its Northeast and West Coast properties, which witnessed revenue drops of 16.1% and 7.8%, respectively. That's terrible, but it's not the whole story. The rest of UDR's portfolio held up relatively well, with its Southeast and Southwest properties actually increasing revenues in the quarter and helping offset the weakness in the big coastal markets.
Thus, diversification is the first big reason to like UDR. Yes, times are tough right now, but its over 50,000 apartment units are spread across the country. That means it's also benefiting from the shift away from big cities. Meanwhile, history suggests that major cities will eventually recover from the pandemic, as they have survived other major headwinds in the past. So UDR is muddling through a rough patch reasonably well and should get back on track as the world gets a better handle on the coronavirus. Meanwhile, investors can collect a nearly 3.9% yield from a stock that's still down roughly 25% from its early 2020 highs. It might be worth getting to know this apartment REIT today.
3. Holding up despite the hit
The last name here, Healthpeak, is in one of the hardest hit REIT sectors -- healthcare. The stock is off nearly 25% from its pre-pandemic heights and the yield is a fat 5.1% or so. The interesting thing is that Healthpeak's financial results really aren't all that bad.
Yes, the senior housing assets this REIT owns are getting hit right now, with net operating income (NOI) in this segment off by 6.3% year over year in the third quarter of 2020. But these assets only make up around a third of its portfolio. The rest largely falls into the medical office and medical research categories, which are performing relatively well. To put numbers on that, NOI in these segments rose 3.3% and 5.5%, respectively, in the quarter. That more than offset the hit on the senior housing side, with Healthpeak's overall NOI rising 2.8%.
If you can step back and look at that critically, this diversified healthcare REIT actually appears like it's doing pretty well given the circumstances. And once the world gets a handle on the coronavirus, thanks to the vaccines now working their way through the population, the senior housing side of the business should start to recover. When that happens, likely toward the end of 2021 or in early 2022, investors will probably reevaluate this healthcare REIT's share price with a more positive view of the future. Now could be a good time to jump aboard if you want to be ahead of the crowd.
Act now, before it's too late
The REIT sector is in a strange state of flux because of the coronavirus. However, that has opened up opportunities for investors willing to step in when others are fearful. W.P. Carey is something of an all-weather name that happens to have a fairly generous yield today. That makes it worth buying as it seeks to take advantage of the pandemic. UDR and Healthpeak are definitely seeing negative sentiment drag down their shares and businesses. However, the diversified portfolios they own are holding up fairly well, and when things start to get better again, they'll be there to benefit.