Office owners and managers comprise an interesting subset of real estate investment trusts (REITs), each overseeing their own mix of everything from suburban and small-town office parks to central city landmarks and life science campuses.
The tenants also are a mix of government agencies, private companies, and mixed-use spaces that combine retail, office, and more. Office REITs also have been on a roll after being initially rocked by the shutdowns wrought by the COVID-19 pandemic, much like the rest of the commercial real estate space, and they're sharing in the recovery.
The 19 office REITs tracked by Nareit logged a 2020 total return of -18.44%, followed by a year-to-date rally of 15.09% as of May 31 and an average dividend yield of 3.42%.
Let's look at the three with the highest returns year to date as of market close on June 26. Each has their own reasons for consideration for a buy in July.
They are Empire State Realty Trust (NYSE: ESRT) at 86.91%, SL Green Realty (NYSE: SLG) at 73.68%, and Brandywine Realty Trust (NYSE: BDN) at 53.62%.
Empire State Realty Trust
The centerpiece of Empire State Realty Trust's portfolio is what it calls "the world's most famous building."
While that's a subjective statement (Taj Mahal, anyone?), there's no argument that this REIT has a major stake in the Big Apple, with a portfolio of 10.1 million rentable square feet that includes the Empire State Building, of course, as well as 13 other office properties, including eight more in Manhattan, three in Fairfield County, Connecticut, and two in Westchester County, New York; as well as approximately 700,000 rentable square feet for retail use.
My Millionacres colleague Matt Frankel points to the company's focus on being green -- including an award-winning focus on providing clean office space -- and the resurgence of tourism benefiting its observatory business atop the iconic tower -- as other good reasons for optimism about this REIT going forward.
Empire State Realty Trust closed at $11.95 a share on June 26, 8.85% below its 52-week high of $13.11 from June 9 and more than twice its 52-week low of $5.19 from Oct. 29. It had a market cap of $3.4 billion and yield of 1.17% based on an annual dividend of $0.14.
That's a paltry payout compared with the other two REITs here, but it's actually a sharp improvement. Empire State had not paid a dividend at all for a year before paying out $0.35 per share on June 30. Prior to that, it had paid out $0.105 a share for 17 consecutive quarters and $0.85 per share for nine consecutive quarters, dating back to 2014.
SL Green Realty
SL Green Realty is among those optimistic office owners that expect most tenants to be back in place this fall, including in New York, where vacancy hit an all-time high in the first quarter of 2021. That matters muchly for SL Green, which notes not-so-subtly on its homepage that it's New York City's largest owner of office real estate.
The company's portfolio includes interest in 84 buildings totaling 37.8 million square feet, including ownership stakes in 28.3 million square feet of Manhattan buildings and 8.7 million square feet securing debt and preferred equity investments.
SL Green closed at $82.50 a share on June 26, 3.68% below its 52-week high of $85.65 from June 10 and more than twice its 52-week low of $40.49 from Oct. 28. It had a market cap of $5.7 billion and a yield of 4.41% based on an annual dividend of $3.64.
SL Green not only didn't stop paying dividends during the pandemic, it began paying them monthly, including $0.303 per month so far this year and $0.295 per month back to March 30, 2020. (One notable exception was the $2.07 per share payout for December 2020.)
Brandywine Realty Trust
Brandywine Realty Trust is a Philadelphia-based REIT that focuses on mixed-use, office, lab, residential, co-working, retail, and green space in the Philadelphia, Washington, D.C., and Austin, Texas markets.
More diverse than the other two entries here, Brandywine says it owns, develops, leases, and manages an urban, town center, and transit-oriented portfolio comprising 174 properties and 24.5 million square feet as of the first quarter.
Brandywine closed at $14.15 a share on June 26, 6.69% below its 52-week high of $15.17 from June 9 and more than 60% above its 52-week low of $8.55 on Oct. 29. It had a market cap of $2.4 billion and a yield of 5.37% based on an annual dividend of $0.76.
Brandywine didn't cut its dividend during the pandemic, but it didn't raise it either. The stock has paid out $0.19 per quarter since January 2019 and has raised it a penny or so each year for the past several years.
The Millionacres bottom line
If there's a contrarian pick among these three office REITs, it's Empire State, simply because it stopped and then resumed paying dividends and currently yields less than SL Green or Brandywine. That said, I put a little money in Empire State when it was bottoming out during the height of the pandemic, and I doubled my investment in less than a year. I wouldn't expect that kind of return to continue, but the fundamentals are there for a long-term buy and hold, it seems.
All three of these stocks are back near their 52-week highs, in fact, as office space continues to recover overall. If you believe that major office markets are going to continue this rally, any of these three are worth a gander and probably won't cook your goose.