Dividends Premium REITs: January 2025
There's deep value in real property for patient, long-term investors.
Dear Dividends Premium member,
Welcome to the January issue of Dividends Premium REITs. This month, I’m launching a new feature: The REIT Sheet Rater.
Every three months, I post a much larger version of this table for this service, highlighting extensive comments and analysis of earnings and guidance for each of the 83 REITs I track. I intend to post this shorter version the other two months of the quarter that are in between earnings releases.
The shorter version focuses only on the most important information for making investment decisions, including buy prices, risk ratings, current prices and yields. Please let me know what you think, preferably on the “Investment Roundtable” that I host on Discord. It’s complementary with your Dividends Premium membership so please check it out.
I’d also like to again invite anyone who’s not yet a member of Dividends Premium to give us a chance with a trial membership.
If you believe in buying low, you won’t find a better time than now to shop for the top quality real estate investment trusts I highlight in this issue of Dividends Premium REITs. And it’s also an outstanding time to build positions in the diversified dividend stocks recommended in Dividends Premium, including the two new positions I took last week.
See the information in this email and on the Substack app to subscribe. Here’s to your wealth!—RC
REITs: Deep Value is There for Patient, Long-Term Investors
Are REITs best viewed as an easy alternative for owning actual land and/or buildings? Or are they really just sector bets to be held in balance with the rest of your stock portfolio?
Here’s how I see it.
First, remember there are a large number of companies now organized as real estate investment trusts that don’t own real property.
I currently list 83 REITs in the “REIT Sheet Rater” attached to this issue. And among them are seven “financial” REITs focused on owning loans. Their profits and dividends don’t depend on property values and rents. Rather, it’s the interest rate spreads between their cost of raising capital and the return on investments they make.
I cover four REITs that own and operate data centers. They do own actual facilities and usually the land under them. But how they fare as businesses depends on providing a service to their customers. And it has little or nothing to do with the value of the property they occupy. The same goes for the coverage universe’s quartet of owners and operators of communications infrastructure like American Tower (NYSE: AMT).
Three REITs including Equity Lifestyle Properties (NYSE: ELS) are in the business of building homes. They also own property. But what makes the difference to profits is what they sell. The half dozen owners of senior lifestyle and care facilities I track including Welltower Inc (NYSE: WELL) depend on maintaining margins in a competitive and highly regulated business.
Billboard operator OUTFRONT Media (NYSE: OUT) is leveraged to the health of the advertising market. Profits at our two timber companies are heavily leveraged to commodity prices. So are the two agricultural REITs in the coverage universe: Landowner Farmland Partners (NYSE: FPI) and cannabis facilities landlord Innovative Industrial Properties (NYSE: IIPR). And profitability and dividends at the hotel and resort operators tracked here sink or swim depending on tourism.
Bottom line: When you buy one of these “specialty” REITs, you’re betting on the business—of which the land beneath is only a small part.
That doesn’t apply so much to the rest of the REIT Sheet Rater coverage universe, which is mainly composed of traditional REIT owners of residential, office, retail and industrial property.
The economics with them are indeed much closer to owning real property. Cash flow and what they can pay in dividends depends on rent growth, occupancy and collection rates. And successful investing requires a healthy tenant base, which can be affected by the health of the economy.
I count the relatively new business of self-storage in the traditional property group as well. Rents, occupancy and collection rates are what feed cash flow. But successful operators locate in areas where their facilities and the land underneath appreciate over time, even as rents rise.
Think Long-Term to Capture Real Value
When you buy and hold best in class REITs in these property areas, you can expect roughly the same economics to apply as if you owned the individual properties themselves. That means you’ll do best by thinking in terms of years of ownership.
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