10 Inflation-Busting Big-Dividend REITs Can Thrive as Interest Rates Shoot Higher

STORE Capital announced last week that it has entered into $600 million of unsecured long-term debt financing. This debt transaction consisted of $400 million five-year and $200 million seven-year floating rate loans.

The loans were effectively converted to a weighted average fixed rate of 3.68% for the term of the loans through the use of interest rate swaps. The company is using the proceeds of the transaction primarily to pay down amounts outstanding on its unsecured revolving credit facility and to prepay, without penalty, $134.5 million of STORE Master Funding Series 2014-1, Class A-2 notes, which bore a coupon rate of 5.0%, resulting in an annual interest expense savings of $1.8 million.

Shareholders receive a 5.52% distribution. Wells Fargo’s $38 target price compares with a $34.33 consensus target and the most recent close at $27.91.

VICI Properties

This is the top pick across Wall Street in the net lease group, and it is an ideal pick for investors who are more conservative and looking for gaming exposure. VICI Properties Inc. (NYSE: VICI) 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 in January) 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 4.81% distribution. The BofA Securities price target is $36. The consensus target is $35.13, and VICI Properties stock closed over 3% higher on Tuesday at $29.93.

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.

W.P. Carey stock comes with a 5.39% distribution. Raymond James has set a $90 price target, while the consensus target is $88.33 and the shares closed at $78.51 on Tuesday.

Almost all these top companies have been hit by the parabolic move higher in interest rates, along with the rest of the market. As history tells us that these top REITs should perform well over the long haul, even as the Federal Reserve continues to raise interest rates. Note that REIT distributions may contain return of principal.

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