3 REITs to Consider for 2021

Real estate investment trusts (REITs) offer a great way for investors to get exposure to commercial real estate investments without having to front up six or seven-figure deposits. A REIT owns, manages, and collects rent from a portfolio of properties, usually of a similar type. Crucially for investors, by returning more than 90% of profits to them through dividends, the REITs get to legally avoid paying almost any income tax.

The exciting news for the likes of you and me then is that these dividend yields are often north of 5%, with an underlying asset based stock that is also fond of capital appreciation. Here are three REITs that are worth considering as a fresh addition to any investor’s portfolio for the coming year.

Medical Properties Trust (NYSE: MPW)

MPW is an $11 billion REIT based out of Alabama and owns healthcare facilities around the world. They operate their properties on triple net (NNN) leases which means their tenants pay pretty much every expense such as taxes, insurance, and maintenance. Not a bad deal to be fair.

If there is one segment of real estate that was in short supply this year, it was hospitals. The COVID-19 pandemic might have sent vacancy rates soaring across commercial offices but for the first time ever many hospitals were operating at full capacity. Shares had basically doubled in the two years prior to the pandemic rolling in back in February but still lost 50% by the middle of March. However, they’re currently at post-COVID highs and look set to complete the reversal of Q1’s damage in the coming months. Their funds from operations (FFO), essentially an REIT’s earnings report, at the end of October showed them beating revenue estimates and collecting 100% of rent due from tenants.

Safe to say their shares are in a good place to continue moving up and in the meantime, investors can collect a 5.19% dividend yield.

Equity Residential (NYSE: EQR)

EQR owns more than 300 apartment properties and close to 80,000 individual units. They trace their origins back to 1969 and in the 53 years since have amassed a $21 billion market capitalization. Considering they’re in residential property, these guys have definitely been more exposed to COVID’s effects than MPW. That being said, occupancy rates for apartments didn’t fall below 93% this year and with a vaccine starting to be rolled out, it’s looking like the worst might be over.

Shares have popped 30% in the past month as hopes for a full recovery have risen, with Mizuho recently raising their price target on EQR shares to $68. At the same time they pointed out how apartment REITs have a history of outperforming other REITs through more direct exposure to a growing US economy, and are also being bolstered by an ongoing shortage in US housing.

EQR’s most recent FFO report was in October, and while it came in a little lighter than analysts were expecting, there’s a 4% dividend yield for investors to take advantage of now as the recovery narrative picks up steam.

City Office (NYSE: CIO)

Whilst certainly the most vulnerable to COVID of the three in this list, and with a $500 million market cap the smallest, CIO offers investors a hefty 6.22% dividend yield which is not to be sniffed at. Shares fell more than 50% in the wake of the first wave and after bouncing back into June, fell another 40% into November. But the 60% run they’ve had since tells you all you need to know about Wall Street’s changing sentiment towards them as we round the corner from the worst of the virus’s effects.

Along with growing hopes for the vaccine, the big driver for the recent run was the trust’s FFO last month. They showed revenue actually growing 6% year on year while management also raised full year forward guidance. The fundamentals are surprisingly strong in this one and it seems to have suffered unfairly from headline risk; that is, being dragged down by the rest of its sector on the back of negative COVID updates throughout the year.

Shares still have upside of around 50% if they’re going back to anything like the old normal, and with occupancy rates improving and revenue growing year on year it’s hard to say that they’re not.