Specialty REITs can yield sweet dividends.
A real estate investment trust, known as a REIT, affords all the perks of property ownership without the headaches of being a landlord. Specialty REITs offer exposure to unique properties that don't fit the traditional real estate mold. "There is, however, a second layer of publicly traded REITs that focus on some unusual properties from self-storage units to casinos," says Steve Azoury of Azoury Financial in Troy, Michigan. Specialty REITs are carving a name for themselves in the market, delivering a dividend yield as high as 8 percent. Here are eight of the best speciality REITs to own.
Data center REITs like EQIX are riding the tech wave. "As we use more and more digital information and that data shifts to the cloud, we'll need more physical places to process and store all that data," says Sam Adams, CEO of Vert Asset Management in Sausalito, California. EQIX meets that need in a unique way by relying on renewable energy. Adams says EQIX has a competitive edge over other data center REITs in attracting clients that are committed to promoting sustainability, such as Apple (ticker: AAPL) and Google (GOOG, GOOGL). Weakness in tech stocks is a risk factor, since data center REITs often trade with the tech sector as opposed to conventional REITS.
The GEO Group (GEO)
GEO is a prison REIT producing a healthy dividend yield of 8.44 percent. The REIT provides turnkey correctional solutions for government partners around the world, including the Federal Bureau of Prisons and the U.S. Marshals Service. Daniel Milan, managing partner at Cornerstone Financial Services in Birmingham, Michigan, says GEO's focus on rehabilitation rather than incarceration distinguishes it from other prison REITs and it's bolstered by strong financials. "The dividend payout is well within its adjusted funds from operations guidance and has stable cash flow," Milan says. "It's also trading around 20 percent below its historical average."
Realty Income Corp. (O)
Realty Income may be one of the top REITs to consider for a recession-proof portfolio. "Some specialty REITs focus on properties with certain lease structures and quality tenants: those with long-term net leases and financially strong corporate tenants," says Louis Swingrover, founder and CEO of 1031Gateway. This REIT does that with a property portfolio of more than 5,600 net-leased assets predominantly occupied by tenants with investment-grade credit. Swingrover says REITs that focus on net-leased property during the Great Recession produced stable dividends and may do so again if the economy contracts in the near future. Acknowledging that O may be overvalued, Swingrover says investors should watch and wait for discount buying opportunities.
Industrial Logistics Properties Trust (ILPT)
ILPT owns industrial land, logistics and warehouse facilities throughout the U.S. Bryan Maher, managing director at B. Riley FBR in New York, calls it an alpha generator, meaning it has the potential to generate above-average returns without additional risk. "ILPT has a strong, steady cash flow from 245 tenants and the portfolio runs at 99.3 percent occupancy," he says. "Industrial real estate, driven by strong e-commerce demand, will likely continue to outperform other commercial real estate in the near to immediate term." With Amazon.com (AMZN) its largest tenant by revenue, ILPT stands to reap direct benefits from that trend. Maher says ILPT may be undervalued right now, making it a good choice for bargain seekers.
Office Properties Income Trust (OPI)
OPI is a new REIT, with its public trading launching in January 2019. The REIT is the result of the merger completed by Government Properties Income Trust and Select Income REIT in 2018, making it one of the largest office REITs in the U.S. Maher says OPI is a value play in the office REIT sector with a strong forecast in 2019. OPI's current yield is 7.08 percent, more than double the average yield of 3.29 percent for the broader office REIT sector. The primary risks include inflation, an imbalance between supply and demand and growth risk as OPI seeks to acquire new properties in a competitive market.
Griffin Institutional Access Real Estate Fund (GRIFX)
GRIFX includes both private real estate funds and public real estate securities. The underlying assets are institutional, with a bent toward major metropolitan markets. "Although the underlying fees are higher than we prefer and it's a closed-end interval fund, meaning there's no daily liquidity or guarantee you can exit your complete position at any given time, there's no denying the return capture offered to investors," says Michael Tanney, managing partner at Wanderlust Wealth Management in New York. He says GRIFX can offer downside protection in a weakening economy. "(GRIFX) should continue to provide high single-digit returns with considerably less volatility than their competitors," Tanney adds.
Lamar Advertising (LAMR)
While advertising is increasingly becoming digital, billboards remain in demand. Azoury says LAMR excels in local billboard sales and is set for bigger-than-expected profits compared with other outdoor advertising competitors. Its most recently reported dividend yield is 4.91 percent, with a market capitalization of $7.44 billion. LAMR is currently trading slightly below its 52-week high of $80.47, but it's maintained a steady trajectory since mid-January. Azoury says the main risk factor for LAMR and similar REITs in the outdoor advertising space is changing government regulation, which could quickly alter investment value.
REITless Impact Income Strategies
REITless Impact Income Strategies focuses on small-dollar lending to single- and multi-family real estate projects.The offering is open to both accredited and nonaccredited investors pursuing impact REIT investing strategies. James P. Dowd, CEO of North Capital, says the REIT's creation reflects investor demand for income-oriented investments that are not highly correlated with equities alongside a desire for sustainability. This REIT presents an outside-the-box opportunity for investors who are aware of the risks that marketplace investing entails.
The best specialty REITs.
To recap, the top REITs for specialty investing are:
-- Equinix (EQIX)
-- The GEO Group (GEO)
-- Realty Income Corporation (O)
-- Industrial Logistics Properties Trust (ILPT)
-- Office Properties Income Trust (OPI)
-- Griffin Institutional Access Real Estate Fund (GRIFX)
-- Lamar Advertising (LAMR)
-- REITless Impact Income Strategies LLC
More From US News & World Report