The REIT sector is been plagued with trouble and woe in the past month. Tenants threaten to stop paying their leases, REITs have suspended or cut dividends, equity values have plummeted, cautions Steve Mauzy, editor of Wyatt Research's Personal Wealth Advisor.
Easterly Government Properties (DEA) has built its business catering to the most secure tenants you will find — the U.S. government. Roughly 98% of its real estate portfolio is leased to the U.S. government. It owns 71 operating properties, totaling approximately 6.6 million square feet.
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Its consolidated operating properties were 100% occupied as of the end of 2019. Most of Easterly’s properties are leased to agencies where telecommuting is either impractical or prohibited. The tenants include the FBI, the DEA, courthouses, and government laboratories.
REIT cash flow, as every experienced REIT investor knows, is measured by funds from operations (FFO). It is the key cash-flow metric. Since Easterly’s February 2015 debut as a publicly traded company, FFO per share has easily covered the dividend.
The FFO trend will hold for 2020 and beyond. Management guided for 2.5% FFO per share growth this year and 2.5% growth in the years that follow. Easterly will have little trouble maintaining the FFO and dividend growth trajectory.
Easterly has a 4% starting yield that’s also tax efficient. Only 51% of the dividend is subject to immediate income tax. The shares sport a 0.44 beta (a measure of price volatility). This means Easterly shares have historically been less than half as volatility as the overall market.
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Easterly gives us a REIT backed by the highest-credit-rated tenants – various agencies of U.S. government. It gives us a market-beating dividend yield in a stable-price investment. Perhaps most important, Easterly gives income investors peace of mind, something in short supply these days.
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