7 Attractive REITs With an Unusual Twist (original) (raw)

Most investors are familiar with real estate investment trusts that buy and lease commercial, retail and residential properties. The following REITS are favorites of the experts who contribute to MoneyShow.com, and each focuses on less-traditional markets, from billboards, casinos and data centers, to mortgage servicing rights, healthcare and life science facilities.

Harry Domash, Dividend Detective

We're also adding a new pick to real estate investment trust portfolio; it is paying 6.4% and is an investment that most analysts hate. Outfront Media (OUT) , is an unusual REIT.

Instead of owning buildings, Outfront owns outdoor advertising media such as highway billboards and advertising structures on railroad platforms that it leases to advertisers and wireless carriers.

Outfront is a relatively low-risk play because analysts don't expect much. Of the six analysts following Outfront tracked by Zack's, only one says "buy" and others are at "hold" which often translates to "sell."

Most are forecasting mid-single digit revenue and cash flow growth, but Outfront recorded 18% December quarter FFO (cash flow) growth on 13% higher revenues. So, positive surprises are possible. Meanwhile, the current dividend yield is 6.4%.

Kenneth Leon, CFRA Research's The Outlook

Alexandria Real Estate Equities (ARE) , which carries our highest investment ranking of 5-STARS, or Strong Buy, is a premier office REIT that offers investors a secular growth tenant base with the defensive characteristics of a high-quality REIT. We view Alexandria Real Estate as a unique REIT that falls into the category of an office REIT, but it is actually very different than most office companies.

Formed in 1994, the company developed clusters of life science properties in the most desirable locations as evident by their dominance in the markets today. Alexandria Real Estate strives to partner with the biopharma industry and serve them with great properties that generate strong cash flows from these tenants.

The company is an urban office REIT uniquely focused on collaborative life science and technology campuses in Class A innovation cluster locations like Cambridge, MA; San Francisco, CA; San Diego, CA; and New York City. We believe the REIT's properties represent highly desirable locations for tenancy by life science and technology entities, because of their locations close to concentrations of specialized skills, knowledge, institutions, universities and related businesses.

We estimate funds from operations (FFO) of 6.90in2019and6.90 in 2019 and 6.90in2019and7.35 in 2020. Our outlook assumes stable occupancy levels and rental rates with contributions from new development projects.

Our 12-month target price at $145 is based on applying a forward P/FFO of 21.0x our 2019 FFO estimate, a premium to office REITS at 16.4x, given the REIT's profile related to the life science industry. Alexandria Real Estate has a 2.92% dividend yield.

Risks to our recommendation and target price include a decline in economic activity that depresses demand for life science and laboratory facilities, an inability to find attractive acquisition candidates, and higher interest rates.

Mark Skousen, High-Income Alert

Based in Boston, Iron Mountain (IRM) is the world leader in document storage and retrieval; it currently assists more than 225,000 organizations in over 50 countries by storing customer records -- both paper and electronic. Its clients include 90% of the Fortune 1000.

Nothing is more important for companies -- and non-profit organizations -- than protecting and maintaining their records. With more than 1,400 facilities and 85 million square feet of storage space, Iron Mountain, you can think of the company's business as building condominiums for boxes.

The company's cost of real estate is on a square-footage basis, but it charges customers on a cubic basis. History shows that once customers sign on, they generally stay. This results in a steady stream of recurring revenue. (Sales hit $4.23 billion over the last 12 months.) And existing customers tend to add 5% more boxes annually.

Iron Mountain is also investing heavily in data centers. These allow companies to lease space, exchange and store digital data, connect to cloud providers and access the internet. The company expects the business to account for 10% of its profits by next year. Earnings per share should hit 1.17asharethisyearandrisetomorethan1.17 a share this year and rise to more than 1.17asharethisyearandrisetomorethan1.50 a share next year.

A few years ago, Iron Mountain changed its structure to become a real estate investment trust. This allows it to avoid corporate taxes by paying out more than 90% of its net income to shareholders in the form of dividends. That means the yield -- already attractive at 6.93% -- will only grow with net income in the months ahead.

Bernie Schaeffer, Schaeffer's Investment Research

HCP Inc. (HCP) is a real estate investment trust that invests primarily in healthcare properties. The REIT has added 12% year-to-date and is consolidating around this key level. Plus, a bull flag formation supported by the 40-day moving average is flashing on the charts. We are recommending a new long position on the REIT.

A bigger rally may be in store for the shares, should short-sellers keep heading for the exits. HCP short interest fell slightly over the last two reporting periods, but the 24.94 million shares still short represent a healthy 5.3% of the stock's available float. It would take almost nine days to cover these pessimistic positions, at HCP's average daily trading volume.

What's more, the equity's Schaeffer's put/call open interest ratio (SOIR) of 1.75 sits in the 95th percentile of its annual range, suggesting that short-term option players have rarely been more put-heavy in the past 12 months. An exodus of option bears could be a boon for the shares.

The REIT name could also benefit from analyst upgrades. While seven analysts give HCP a "buy" or better rating, eight still see it as a tepid "hold." Traders should target a move up to 36,withastopbelow36, with a stop below 36,withastopbelow29.

Brett Owens, Contrarian Outlook

New Residential Investment (NRZ) is technically a mortgage REIT, but the firm doesn't simply buy mortgage loans and collect the interest. New Residential has uniquely positioned its portfolio to make money during all rate environments. It has steadily increased its book value -- the value of the investments it holds -- every year since going public in 2013.

The firm's recent secret has been to purchase mortgage service rights (MSRs) instead of mortgages themselves. MSRs rise in value as mortgage refinancing slows down, which they certainly have. Today less than 10% of all outstanding mortgages are "refinanceable."

The current Fed outlook should remain bullish for MSRs. Steady rates would keep these mortgages out of refinance territory. CEO Michael Nierenberg bought 15to15 to 15to20 billion more MSRs in the fourth quarter (boosting its holdings by another 5%) to help continue to power the stock's $0.50 per quarter payout.

While Nierenberg owns hedges on its MSRs, this portion of the portfolio did drop in value in the fourth quarter of 2018 as the stock market and rates plunged. The stock's book value is $16.25, yet shares trade barely above this level. This means you and I can buy the stock for the liquidation value of its investments and get the rest of the business for free.

And, by the way, the stock pays $2 per share per year, which is good for 12.1%. These generous dividends are covered by the current earnings power of the portfolio itself.

Bryan Perry, Cash Machine

Global Medical REIT (GMRE) is primarily engaged in the acquisition of licensed, state-of-the-art, all-purpose health care facilities and then leases these facilities to leading clinical operators under the long-term triple-net lease structure. The company is taking full advantage of industry trends that are embedded for future growth.

The 65+ age group is expected to double between 2015 and 2060 and the 85+ age group is expected to triple between 2015 and 2060. And changing health care trends are driving new REIT structures like Global Medical.

Global Medical's widely diversified portfolio of properties is composed substantially of off-campus Medical Office Buildings, Specialty Hospitals, Inpatient Rehabilitation Facilities and Ambulatory Surgery Centers. This acquisition strategy coincides with taking advantage of the aging population and the decentralization of health care.

The company operates 72 modern facilities with a 100% occupancy rate from 41 high-quality tenants that occupy 1.9 million square feet of space with an average of 10.4 years remaining on outstanding lease terms. No tenant contributes greater than 11% to annualized base rent.

The company is growing Funds From Operations (FFO) at a nice pace. The company declared a quarterly dividend of 0.20,representinganannualizedrateof0.20, representing an annualized rate of 0.20,representinganannualizedrateof0.80 per share that translates to a current dividend yield of 7.4%.

The company went public in mid-2016 at $10; the REIT is now hitting stride with a pipeline of potential acquisitions that are in the wings. Let's put this all-weather health care investment to work for us and collect a juicy yield.

Tim Plaehn, The Dividend Hunter

With the recent retrenchment in REIT values, you can find shares with very attractive yields. The next step is to ferret out companies that will grow dividends at greater than the rate of inflation. Here are two in the hotel-related space.

MGM Growth Properties LLC (MGP) is a REIT that was spun-off by MGM Resorts International (MGM) in April 2016. In the IPO MGP received ownership to a larger portion of the MGM owned real estate, primarily casino hotel resorts.

The properties are leased back to MGM Resorts on a long-term master net lease. Lease terms are very favorable for MGM Growth Properties. The master lease means that MGM makes a single lease payment and cannot get out of paying for individual properties. All new acquisitions from MGM are added to the master lease. The lease includes annual rent escalators and profit sharing from the portfolio resorts.

The MGP dividend has been increased five times since the IPO and is forecast to grow by 8% in 2019. As the name states, this is a growth focused REIT. They have made offers on Las Vegas properties not owned by MGM. The stock currently yields 6.0%.