An adage among real estate investors basically says, “You can’t make or create any more land.” Though you can always build higher, you still need the land. One of the best assets, and one that most investors are underweighted in, is real estate. Those that own a home are technically real estate investors, but home ownership does not produce any income, aside from rental homes, which can be very capital intensive and time consuming.
We screened our 24/7 Wall St. real estate investment trust (REIT) universe looking for the highest-yielding ones that are publicly traded. Note that REITs can be very vulnerable to spikes in interest rates. Many across Wall Street feel that the Federal Reserve will begin raising the federal funds rate from the current level near zero in 2022. Yet, even with three 0.25% increases in 2022 and 2023, we are still looking at a rate in the 1.5% to 1.75% range at the end of 2023. From a historical standpoint, that is still extremely low.
These five top REITs all pay a 4.5% or higher distribution and are rated Buy at top Wall Street firms. 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 a distribution increase for the fourth quarter. Gladstone Commercial Corp. (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 the initial public offering 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 occupancy has never dipped below 95.0% since 2003.
Most importantly for investors, Gladstone has a track record of success, as exhibited by a history of strong distribution yields, consistent occupancy greater than 95%, and more than 10 years of paying continuous monthly cash distributions.
Investors receive a 5.83% distribution. Aegis has a Wall Street high $26 price target, which may be going higher soon. The consensus target is $25.00, and the last trade for Friday was reported at $25.77.
Global Medical REIT
Income investors should take a long look at Global Medical REIT Inc. (NASDAQ: GMRE). The company 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 draws on its credit facility (low-2% current cost of debt). Collections have outperformed expectations during the pandemic. The cost of capital is tied to benefits of diversification and external growth potential.
Inventors receive 4.62% distribution. The B. Riley Securities price target is $18, and the consensus target is $17.44. The final trade on Friday was at $17.75 per share.
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 4.74% distribution. The Deutsche Bank price target for Medical Properties Trust stock is a Wall Street high $27. The $23.54 consensus target compares with the most recent close at $23.63 a share.
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.
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.
Shareholders receive a 5.14% dividend. The $43 Deutsche Bank price target is higher than the $40.75 consensus figure. MGM Growth Properties stock ended last week at $40.85.
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.
W.P. Carey stock investors receive a 5.14% distribution. Wells Fargo has set a big $90 price target, while the consensus target is $86. The shares closed most recently at $82.05.
These five top companies pay dependable distributions above the 4.5% level. With the prospect of continued low interest rates for the foreseeable future, and the stock market extremely risky and overbought, it makes sense to have solid assets like real estate. It also is important to remember that REIT distributions can contain return of principal.
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