Real estate investment trusts (REITs) are by their very nature structured to be reasonably safe investments. They’re required to pay out some 90% of their net income, after all, so as long as they make money, you do, too.
But these are not normal times, and many REITs have suspended dividends -- and seen share prices tank -- while their businesses reel from the economic effects of the coronavirus pandemic.
And now, we have a new administration coming in to preside over the government of the largest economy in the free world. President-elect Joe Biden already is putting a task force in place to take on the pandemic. That might make you feel a bit safer, or not. Either way, here are three REITs that also seem like safe bets going forward.
Broadband expansion and American Tower
Biden promised throughout his campaign to expand broadband access to all Americans, especially rural areas. He won the election, so why not consider an investment bet on a company primed to profit from such an infrastructure expansion?
American Tower (NYSE: AMT) is the perhaps the largest publicly traded REIT of them all but still has room to grow, as 5G networks mature and broadband itself reaches areas it’s never been before.
American Tower develops, owns, and operates multitenant communications real estate, with a portfolio of over 170,000 communications sites. Those aren’t just the familiar cell towers that dot the landscape. The Boston-based company also provides in-building and outdoor distributed antenna systems, managed rooftops, and services that speed network deployment.
Like the other two in this trio of safe stocks, Boston-based American Tower has weathered the pandemic economy well, posting a total one-year return of 18.54% based on its Nov. 6 closing price of $242.15. The company has also been steadily raising its dividend since 2013, reaching $1.14 per share in the third quarter, good for a current yield of 1.88%.
That’s not a huge yield, but it’s just below the 2.16% currently posted by the six REITs in the Nareit infrastructure cluster, and with a stock price that’s still nearly 11% off its 2020 high, taking a stake in American Tower feels comfortable but not exciting. And comfortable isn't so bad nowadays.
Easterly Government Properties is Uncle Sam’s landlord
Easterly Government Properties (NYSE: DEA) buys, develops, and manages Class A commercial properties it leases to the U.S. government through the General Services Administration.
Easterly is the sole owner of 76 operating properties across the country, with an average remaining lease of 7.8 years. Its latest acquisitions and redevelopments include a 76,112-square-foot FBI field office in Mobile, Alabama, and a 200,000-square-foot FDA facility in Atlanta, respectively.
Also pointing to its steadiness is Easterly’s payouts. It’s paid a dividend of $0.26 per share every quarter since the fourth quarter of 2017, giving it a current yield of 4.85%.
The company’s stock hit a 52-week high of $29.70 earlier this year, and it closed on Friday, Nov. 5, at $21.43, so there could be some upside there, too, although this feels more like a growth-and-income stock than a growth play.
And while it’s not as secure as buying a government bond, of course, in its third-quarter earnings call on Nov. 2, chairman Darrell Crate said, “You will not find a single U.S. REIT with better tenant credit quality than Easterly.”
Innovative Industrial Properties capitalizes on cannabis
Add Arizona, Montana, New Jersey, and South Dakota to the roster of states where adult recreational use of marijuana has been legalized. That means, as of the Nov. 3 election, 15 states have approved pot for that purpose. Meanwhile, 36 states and the District of Columbia allow medical marijuana. A Nov. 6 CNN article cites a market analyst who says the U.S. cannabis industry will post $19 billion in sales this year, $24 billion next year, and $45 billion by 2025.
There are multiple ways to invest in the marijuana market, and what looks like a safe bet is this REIT: Innovative Industrial Properties (NYSE: IIPR). Considered an industrial REIT, IIPR is the only REIT that specializes in owning and leasing facilities for the production of medical-use marijuana.
The San Diego-based company was only founded in 2016 but already owns 63 properties in 16 states, properties it’s operating with triple net leases that have an average remaining lease of 16.2 years, and they’re nearly fully leased.
IIPR just boosted its dividend to $1.17 a share as it continues a growth trend there that began with its initial payout of $0.15 a share in the middle of 2017. That’s a yield of 2.78% based on its Nov. 6 closing price of $152.38. Nareit’s yield for all 14 industrial REITs was 2.56% on Oct. 31, but IIPR is at that average with a stock price that has nearly quadrupled after bottoming out at around $40 a share in the spring.
In fact, IIPR’s stock has jumped 30% so far in November alone, testament to the optimism the market has in this industry and this company. I tend to agree.
The Millionacres bottom line
Each of these REITs presents their own reasons for feeling safe. For instance, whether that political promise of broadband access comes to fruition, the simple fact remains that mobile and internet service and the infrastructure that supports them will continue growing in demand. American Tower investors can expect to continue profiting from this investment meeting that challenge.
Easterly Government Properties stands to benefit from the prospect of increased government spending on itself and has the full faith and backing of the federal government (and all us taxpayers) to keep the rent going.
And Innovative Industrial Properties seems especially well-positioned to take advantage of the legal cannabis business, especially if the federal government relaxes its stance on legal banking within the industry and more states jump on the legalization bandwagon, which now seems more likely. On that one, the voters have spoken.