There is an adage among real estate investors that “You can’t create any more land.” While you can always build higher, you still need the land. One of the best assets that most investors are underweighted on is real estate. Those that own a home are technically real estate investors, but home ownership does not produce any income, unless they are rental homes, which can be very capital intensive, not to mention time-consuming.
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We screened our 24/7 Wall St. real estate investment trust (REIT) universe looking for the highest yielding ones that are publicly traded. It should be noted that REITs can be very vulnerable to sharp increases in interest rates. However, the Federal Reserve already has telegraphed that the rate increases will begin this month and probably will happen at each meeting this year and next. But when they are complete, the federal funds rate will be at 2.50% to 2.75%. They were at 5.25% in 2007.
Six top REITs all pay a 5% or higher distribution and are rated Buy at top Wall Street firms. The big plus for investors looking to own the sector is that all have pulled back in price big time from highs posted near the end of 2021 and are offering outstanding entry points once again.
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It is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Gladstone Commercial
This company recently announced it is increasing the distribution for the fourth quarter. Gladstone Commercial Corporation (NASDAQ: GOOD) is focused on acquiring, owning and operating net leased industrial and office properties across the United States.
As of June 30, 2021, Gladstone owns a diversified portfolio of 121 office and industrial properties located in 27 states and leased to 106 tenants. The company has grown the portfolio in a consistent, disciplined manner at a rate of 18% per year since going public in 2003. It matches long-term leased properties with long-term debt to lock in the spread to create a durable, stable cash flow stream to fund monthly distributions to shareholders. Current occupancy stands at 96.5%, and that occupancy has never dipped below 95.0% since 2003.
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Most importantly for investors, Gladstone has a track record of success, as exhibited by a history of strong distribution yields, consistent occupancy and more than 10 years of paying continuous monthly cash distributions.
Investors receive a 7.07% distribution. Colliers Securities has a Wall Street high $26 price target. The consensus target is $25.25, and the last trade for Monday was reported at $21.30.
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Global Medical REIT
Income investors should take a long look at this company. Global Medical REIT Inc. (NASDAQ: GMRE) engages in the acquisition of purpose-built health care facilities and leasing of those properties to strong health care systems and physician groups.
The company acquires off-campus health care facilities at 7.0% to 8.5% cap rates, funded with a low- to mid-6% cost of equity, and it draws on its credit facility (low-2% current cost of debt). Collections have outperformed expectations during the pandemic. Cost of capital is tied to benefits of diversification and external growth potential.
Inventors receive a 5.43% distribution. The B. Riley Securities price target is $18, while the consensus target is $18.50. The last trade on Monday was posted at $15.11.
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Medical Properties Trust
This stock may offer investors the best value at current price levels. Medical Properties Trust Inc. (NYSE: MPW) acquires, develops and invests in health care facilities and leases health care facilities to health care operating companies and providers. The company also provides mortgage loans to health care operators, as well as working capital and other term loans to its tenants/borrowers.
With a growing portfolio and a versatile business model, the company continues to rank high across Wall Street. The analysts noted that the company’s acute care hospitals rent coverage increased nicely and the company attributed the increase to better cost controls and higher patient admissions.
Shareholders receive a 5.76% distribution. The $26 Credit Suisse price target is a Wall Street high. The consensus target for Medical Properties Trust stock is $25.00, and shares closed on Monday at $20.13.
MGM Growth Properties
This company is a triple net lease REIT formed in April 2016 when it was spun out of MGM Resorts. MGM Growth Properties LLC (NYSE: MGP) is one of the leading publicly traded REITs engaged in the acquisition, ownership and leasing of large-scale destination entertainment and leisure resorts with diverse amenities including casino gaming, hotel, convention, dining, entertainment and retail offerings.
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The company, together with its joint venture, currently owns a portfolio of properties, consisting of 12 premier destination resorts in Las Vegas and elsewhere across the United States; MGM Northfield Park in Northfield, Ohio; Empire Resort Casino in Yonkers, New York; as well as a retail and entertainment district, The Park, in Las Vegas.
The destination resorts collectively comprised approximately 27,400 hotel rooms, 1.4 million casino square footage, and 2.7 million convention square footage. As a growth-oriented public real estate entity, the company expects its relationship with MGM Resorts and other entertainment providers to position the company attractively for the acquisition of additional properties across the entertainment, hospitality and leisure industries.
MGM Growth Properties stock investors receive a 5.78% distribution. Deutsche Bank has set a $43 price target, and the consensus target is $41.55. The share price was last seen on Monday at $36.36.
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VICI Properties
This is another top pick across Wall Street in the net lease group, and it is an ideal stock for investors who are more conservative and looking for gaming exposure. VICI Properties Inc. (NYSE: VICI | VICI Price Prediction) is a triple net lease REIT that was spun out of Caesars Entertainment post-bankruptcy.
The company has 23 mixed-use gaming, lodging and entertainment properties in its portfolio, and a subsidiary that owns four championship golf courses. VICI also owns roughly 34 acres of undeveloped land in Las Vegas, which it leases to Caesars.
Much of the focus this year was on VICI’s recent deal to acquire the real estate of the Venetian Resort in Las Vegas, with Apollo as a new tenant. Looking ahead, many on Wall Street are very positive on VICI’s embedded growth pipeline with Caesars Entertainment, including a put/call on the Centaur properties in Indiana (starting this month) and a right of first refusal on a strip asset sale for Caesars, which could occur soon after a full earnings before interest, taxes, depreciation, amortization and restructuring or rent costs recovery.
Investors receive a 5.38% distribution. The VICI Properties stock price target at Berenberg Bank is $35. The consensus target is slightly higher at $35.52. Shares closed trading on Monday at $26.78.
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W.P. Carey
This is a large net lease REIT with an incredible distribution for income investors. W.P. Carey Inc. (NYSE: WPC) ranks among the largest net lease REITs, with an enterprise value of approximately $18 billion and a diversified portfolio of operationally critical commercial real estate that includes 1,215 net lease properties covering approximately 142 million square feet, as of September 30, 2020.
For nearly five decades, the company has invested in high-quality single-tenant industrial, warehouse, office and retail properties subject to long-term leases with built-in rent escalators. Its portfolio is located primarily in the United States and northern and western Europe, and it is well diversified by tenant, property type, geographic location and tenant industry.
Net lease REITs generally rent properties with long-term leases (10 to 25 years) to high credit-quality tenants, usually in the retail and restaurant spaces. “Net lease” refers to the triple-net lease structure, whereby tenants pay all expenses related to property management: property taxes, insurance and maintenance.
Investors are paid a 5.31% distribution. The Wells Fargo price target of $90 compares with the $87.14 consensus figure. W.P. Carey stock ended Monday trading at $79.46 a share.
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These six top companies pay dependable distributions above the 5% level. Plus, they are in good sectors like gaming and health care, which are poised to do well in the current difficult times. With the prospect of continued low interest rates for the foreseeable future, and the stock market extremely risky and looking to move into bear market territory, it makes sense to have solid assets like real estate. It is important to remember that REIT distributions can contain return of principal.
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