Diversify your holdings with REITs.
Real estate investment trusts provide diversification and income from their dividend yields and invest in shopping centers, apartments, office buildings, data centers and cell towers. A REIT trades similarly to exchange-traded funds or stocks. The number of alternative property types such as data centers, cell towers, self-storage and manufactured housing communities now consist of a substantial part of the REIT industry and generate revenue in different strategies, says Michael Underhill, chief investment officer of Capital Innovations. Here are six unusual REITs to buy this year for your portfolio.
Brixmor Property Group (ticker: BRX)
Strip mall center REIT multiples have expanded relative to the overall sector. Shopping centers have outperformed compared to shopping malls and will continue to expand, Underhill says. Brixmor Property Group owns 421 retail centers for a total of 73 million square feet of retail space that includes 5,000 national retailers such as Walmart (WMT), TJX Companies (TJX), Ross Stores (ROST) and Kroger Co. (KR). "We believe Brixmor's fundamentals are better on a relative basis versus malls," he says. "BRX has an opportunity to grow its exposure to ?tness and restaurants as well as participate in the upside of openings by key retailers including Burlington, Ross, Ulta, and TJ Maxx, with positive leasing spreads."
Innovative Industrial Properties (IIPR)
Innovative Industrial Properties, a REIT that focuses on the regulated U.S. cannabis industry, grew the company's earnings per share by 135% in the last 12 months. The share price gain of 95% did not keep pace with the EPS growth. "It seems the market isn't pricing Innovative Industrial Properties as it was before," Underhill says. "We see this as an opportunity for an entry point for investors that were previously priced out." The average REIT is generating low single-digit rent spreads when it purchases a property while the company generates significantly better spreads and should command a premium from investors for the foreseeable future, he says.
A logistics real estate company, Prologis focuses on the industrial REIT market. This portion of the REIT industry's share prices have been strong, but positive estimate revisions have limited relative multiple expansion, Underhill says. On a market-cap weighted average basis, the trailing 12 months industrial REIT multiple expansion was 25%, similar to the REIT sector average of 23%. The company reported third-quarter adjusted funds from operations per share of 97 cents, beating analysts' estimates for the adjusted funds from operations per share of 93 cents. Prologis declared a regular cash dividend for the quarter of 53 cents per share of the company's common stock.
Iron Mountain (IRM)
Iron Mountain owns 1,400 data storage facilities and has 225,000 customers. As the economy and consumers generate more data, storing information becomes more critical. "Nearly every aspect of our electronic lives connects with the internet and requires some degree of data storage," says Daren Blonski, managing principal of Sonoma Wealth Advisors. "By owning REITs which own data centers and serve many of the large organizations that use data storage, you're effectively owning the space that our data must be archived. Regardless of economic conditions your cell phone provider still must store your data."
American Tower Corp. (AMT)
American Tower is a multi-national infrastructure REIT that owns 40,000 towers in the U.S. and 109,000 towers internationally. The global economy continues to connect via cell phones while traditional phone lines are mostly a relic of the past, Blonski says. "As this trend continues, having a portion of your portfolio invested in REITs that own cell phone towers could prove worthwhile," he says.
Hannon Armstrong Sustainable Infrastructure Capital (HASI)
One way to build in additional diversification into your portfolio and offer a sustainable investing approach is to buy a sustainable infrastructure REIT such as Hannon Armstrong, Blonski says. The assets include wind turbines, solar power and other energy efficiency assets. The company has more than $4.7 billion in assets is Hannon Armstrong and pays a 4.6% dividend. Non-traditional REITs can generate additional income, but liquidity within them is always essential. "Make sure that the investments you're buying are liquid, meaning they offer you the opportunity to get your money back when you want it," he says.
Unusual REITs to buy now:
-- Brixmor Property Group (BRX)
-- Innovative Industrial Properties (IIPR)
-- Prologis (PLD)
-- Iron Mountain (IRM)
-- American Tower Corp. (AMT)
-- Hannon Armstrong Sustainable Infrastructure Capital (HASI)
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