If you have to get in a fight, make sure it’s one you can win.
Sound advice, right? Just easier said than done.
Winning a fight – any fight – comes down to a combination of preparation and the ability to take advantage of your surroundings. It’s not always about who’s bigger than the competition. The ultimate question is: Who’s better?
And who’s better can be a simple matter of who brought the most battle-tested friends to back them up.
That’s our REIT-related focus right now. With good reason too when the broader markets keep swinging away at whoever and whatever they can.
They’ve brought the fight to us. That much is more than evident after the last year’s worth of wild swings. Recognizing that obvious fact, we’re left with one of two options:
- Run away.
- Give ‘em every bit as good as we get. And then some.
No doubt, you’ve taken some hits by now. Everyone has. But that doesn’t mean it’s time to throw in the towel.
Not even close.
You just have to find the right “buddies” to fight with. Buddies like these five battle-tested real estate investment trusts that are well worth aligning with…
In good times and times like these.
Strong and Scrappy REITs Are the Way to Go Right Now
Finding the right stocks, bonds, trusts and other investment vehicles that meet your specific needs at your specific stage of life is no walk in the park. It requires insights and investigations, and a fighting spirit that just won’t quit.
Even then, there are plenty of people who lose in bull markets. And there are those who come out big in bear markets.
Occasionally, yes, it’s sheer luck that influences the outcome one way or the other. But sheer luck isn’t something I’d be comfortable betting too big on overall.
I’d much rather put my money down on something that’s been in a few fights before and always come out ahead someway, somehow.
Strong, scrappy companies like that are survivors, not just because they’re “that good” or “that fortunate,” but because they know how to take care of themselves with whatever comes their way.
They’re an admirable mix of experience and ingenuity that gives them plenty of policies and procedures to fall back on when necessary… while still maintaining their ability to see when those tried and true methodologies need to be reassessed.
That combination right there is worth a second look.
Evaluating the Real Estate Battleground
Don’t get me wrong. There are most definitely times to buy into newer, shinier REITs.
But this isn’t one of them. Not when the markets are throwing whatever random punches they can.
We need to know we’re aligning ourselves with real estate investment trusts that can take those punches and give them right back.
That’s why we’re much better off looking at REITs that have been there and seen that. They’ve fought in past real estate debacles like the Great Recession, and they emerged with all their teeth intact.
(Or at least most of them. They were still smiling regardless.)
In large part, that’s because of their corporate mindsets. These REITs know how to take advantage of bull markets – but not at the expense of the bears that are always certain to come.
They’re better prepared, which leads to better results, as shown in the four companies below…
Taubman Centers (TCO) is a mall REIT that’s landlord to many of the highest quality retailers, including Tiffany, Dolce & Gabbana, Diesel, Restoration Hardware, Forever 21, J.Lindeberg, and Ben Sherman. The company has proactively increased the footprint of new retailers throughout its portfolio by replacing formerly prominent tenants. Taubman is the highest-quality mall operator in the peer group, validated by unparalleled anchor quality that drives mall visitation.
Taubman has an impressive history of dividend safety, and is the only mall REIT that did not cur its dividend during the financial crisis (although outlet center REIT, Tanger Outlets, did increase during 2009). One key differentiator for Taubman is the company’s balance sheet, an icon of operational excellence, as the mall REIT has successfully orchestrated a showcase of prudent financial management. We recently upgraded Taubman to a Strong Buy with expectations that the company will generate returns of around 25% annually.
Federal Realty (FRT) is a shopping center REIT that’s recognized as an industry leader in the ownership, operation, and redevelopment of high-quality retail-based properties located primarily in major coastal markets from Washington D.C. to Boston as well as San Francisco and Los Angeles.
Federal is an A- rated company (S&) as the company is recognized for its consistent and steady cash flow growth generated from its community shopping centers, as well as the prudent management of its balance sheet and its creative redevelopment and mixed-use development. In addition, Federal Realty is a “dividend king” based upon the company’s impressive 50+ history of dividend increases. We maintain a Strong Buy on Federal Realty that validates our very bullish sentiment of this battle-tested REIT.
Realty Income (O) is a Net Lease REIT that is considered one of the most stable and reliable companies in the REIT sector. The company has evolved into a massive REIT with 5,694 properties (leased to 260 commercial tenants in 48 industries) located in 49 states and Puerto Rico. This blue-chip has incredible scale, well-diversified by tenant, industry, geography, and – to a certain extent – property type. No tenant represents more than 6.6% of revenue.
Realty Income also has an impressive dividend history as the company has increased its dividend 100 times since the company went public in 1994. The company has maintained a conservative payout ratio and remains committed to the mission of paying dependable monthly dividends that increase over time. With the payment of the February 2019 dividend, shareholders will realize a 3% increase in the amount of the dividend as compared to the same month in 2018. We maintain a BUY, but we recommend waiting on a pullback given the price appreciation over the past few months (always consider using a margin of safety).
Healthcare Trust of America (HTA) is a healthcare REIT that focuses on acquiring, owning, and operating high-quality medical office buildings (or MOBs) located on the campuses of nationally recognized healthcare systems. The company is the largest MOB owner with a portfolio of 434 buildings and over 23.2 million square feet in 32 states. The company’s investments are targeted to build critical mass in 20 to 25 leading gateway markets that generally have leading university and medical institutions, which translate to superior demographics, high-quality graduates, intellectual talent and job growth.
Investors should recognize that Healthcare Trust of America has evolved into a dominant (scale advantage) REIT with an enviable balance sheet (rated BBB). Although MOBs were once considered an alternative property sector, institutional capital has warmed up to MOB’s and Healthcare Trust of America is now considered a highly defensive healthcare pick. The company has maintained a healthy dividend growth history and we are maintaining a Strong Buy.
I own shares in TCO, FRT, O, and HTA.