Investing

John Seetoo

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Real estate investment trusts (REITs) are a popular investment sector of particular interest to income-based investors. For centuries, and transcending many nations and cultures, real estate has always been looked upon as a source of wealth, security and financial stability. Private property rights are a cornerstone of the U.S. Constitution, and the primary platform upon which the success of capitalism is predicated. It is one of the driving factors behind the perpetual aspiration towards home and property ownership.

The biggest obstacle to owning real estate has long been the high price of entry. The entire mortgage industry was built upon providing the capital for would-be real estate owners to purchase homes and property that they would ordinarily not be able to afford. This has developed into a primary factor for the nation’s GDP, as commercial real estate finance has permeated to all levels of banking. However, with REITs, everyday investors can gain access to the real estate sector as well as the eye-catching yields these businesses are known for. 

Key Points in This Article:

• Organized as tax pass-through entities, REITs are required by the SEC to pay out 90% of all their pre-tax income to shareholders.
• Because of this, REITs’ substantial dividend income is attractive to retirees and other income-based investors.
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Why Are REITs Popular?

The following five sample REITs represent different real estate subsectors that all qualify for REIT registration. All five generate monthly dividend payouts with relatively high annual yields. For the sake of easy math, the sample investments are predicated on $10,000 per stock, but the average yield, regardless of the principal sum, would equate to about 9.42% APY. The allure for income-based investors and retirees is thus self-explanatory. All quotes based on market price at the time of this writing. 

Apple Hospitality REIT

Annual yield: 8.11%

Shares for $10,000: 862

Annual dividend amount: $811.00

Monthly dividend amount: $67.58

When it comes to rental fees, the hospitality industry probably has some of the quickest turnovers, since room rentals are measured in days and hours. Among the REITs involved with the hospitality and hotel sector, Richmond, Virginia-based Apple Hospitality REIT (NYSE: APLE) is one of largest players. 

Boasting a portfolio of 221 hotels with over 29,900 rooms in 85 markets and 37 states (plus District of Columbia), Apple Hospitality REIT hotels are primarily operating under the Marriott (97) or Hilton (118) brands, along with 5 under the Hyatt name. 

The company continues to grow through acquisition, with its latest announcement on the purchase of the 126 room Homewood Suites by Hilton Tampa-Brandon in June for $18.8 million. By strategically keeping debt low and acquiring properties below market rate, Apple continues to add to its value, reflecting in its $2.75 billion market cap. Since going public in 2008, Apple Hospitality REIT has never missed a dividend payment. 

Modiv Industrial, Inc.

Yield: 8.13%

Shares for $10,000: 699.3

Annual dividend amount: $813.00

Monthly dividend amount: $67.75

With companies like Nvidia, Apple and many other household names announcing the renaissance of the American manufacturing sector, trillions of investment dollar commitment have already been announced by the Trump administration with much more to follow. However, the realization of this initiative requires factory space. This is where Modiv Industrial, Inc. (NYSE: MDV) has a niche competitive advantage. 

Based in Reno, Nevada, Modiv Industrial, Inc. has built a $602 million real estate portfolio of single tenant, net lease commercial properties, primarily in the industrial manufacturing sector. Most of the leases are for an average of 14 years, $39,000 rent per annum, with ~2.5% annual rent increase.  Modiv owns a total of 43 properties totalling 4.5 million square feet, across 15 states. Its 29 manufacturing tenants are based in a variety of industries: metals, infrastructure, aerospace, automotive, metals, energy, industrial products, technology, plastics, food production and medical are all represented, along with a Costco as the sole retail tenant.

As one of the few REITs in the niche single tenant net lease commercial space, Modiv has caught the attention of several analysts, who have lauded its dividend consistency and focus. Among its analyst fans are Alliance Global Partners, Colliers Securities, Lucid Capital and B. Riley Financial who all have given Modiv a “ strong buy” rating.

Slate Grocery REIT

Yield: 8.21%

Shares for $10,000: 954.19

Annual dividend amount: $821.00

Monthly dividend amount: $68.42

When it comes to defensive sectors, consumer staples, which consists of indispensable products that are necessary no matter the economic climate, tops most analysts’ lists. And within consumer staples, food is the number one item, even ahead of medicine.  

REITs that specialize in providing commercial space for tenants in specific industries can often create very profitable niches for their businesses, especially if the locations are accessible and the businesses are essential. Slate Grocery REIT (OTC: SRRTF) has selected the retail food and grocery business as its targeted industry, and their properties are occupied by national grocery chains and supermarkets in shopping malls across the continental U.S. Among the familiar supermarkets occupying Slate-owned locations are:

• Kroger
• Winn-Dixie
• WalMart
• Aldi
• Stop & Shop
• Lowes Foods

Although Slate Grocery REIT is a Canadian company based in Toronto, its properties are entirely in the continental USA. Its locations can be found all along the Eastern Seaboard, from New Hampshire all the way to Florida, as well in NY, PA, MD, VA, KY, TN, OH, MI, IN, IL, WI, MN, ND, UT, AL, TX, CO, and CA.  

Healthpeak Properties, Inc.

Yield: 7.03%

Shares for $10,000: 577.7

Annual dividend amount: $703.00

Monthly dividend amount: $58.58 

Headquartered in Denver, Healthpeak Properties, Inc. (NYSE: DOC) operates as an Umbrella Partnership REIT (UPREIT) focused on health care properties. As an UPREIT, Physicians Realty owns all of the real estate properties and also serves as the managing partner. In an UPREIT, the Operating Partner units replace REIT shares between the property owners and the REIT. The property owners receive benefits in an UPREIT, including:

• Deferred capital gains taxes
• REIT distribution income
• Liquidity option to convert OP units to REIT shares at a later date
• Better diversification through a larger real estate portfolio in the aggregate

Healthpeak leasing clients include hospitals, physicians, lab facilities, mental health treatment centers, and continuing care retirement centers. Some of its more notable locations include:

• Baylor University Medical Center – Dallas, TX
• Calko Medical Center – Brooklyn, NY
• Freedom Plaza Sun City Center – Tampa, FL
• Cambridge Discovery Park – Boston, MA

AGNC Investment Corp.

Yield: 15.53%

Shares for $10,000: 1,089.3

Annual dividend amount: $1,553

Monthly dividend amount: $129.42

The last REIT example actually neither owns nor manages physical real estate. Formerly known as American Capital Agency Corp., the company changed its name to AGNC Investment Corp. (NASDAQ: AGNC) in 2016. Based in Bethesda, Marlyland, American Capital Agency is a REIT that primarily invests in U.S. government agency collateral mortgage obligations, such as Fannie Mae and Freddie Mac. 

Since AGNC is not subject to the overhead, management, and liability costs associated with physical premises real estate operations, it has more capital to leverage into portfolio management of its FNMA and FDMC bonds. Under the REIT registration rules, AGNC has to remit 90% of its profits, which is why its yield is nearly double that of the other REIT examples in this article. On the other hand, FNMA and FDMC paper is much more interest rate sensitive, so although AGNC has never failed to pay a dividend payment in the past 14 years, dividend amounts have varied during periods of unusual market volatility or bearish environments.

REITS can provide a solid real estate based income stream for a portfolio that can offer stronger intrinsic value than higher  synthetically derived dividend plays, such as YieldMax ETFs, albeit with lower dividends. If diversification is desired for a portfolio, REITs may not equal the growth of many tech stocks, but they will solidly deliver the income to ride out tough economic times, such as what the US underwent from 2021-2024. 

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Investing, real estate, REIT, UPREIT