High-Quality REIT with Double-Digit Return Potential
High-Quality REIT with Double-Digit Return Potential
Covered & Growing Dividend, Demographic Tailwinds, and Modern Assets
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If you’ve been a long-term reader of mine, you’ve probably seen my write-ups on distressed REITs such as OPI and DHC (see below). While there’s certainly value to be found in these beaten-down names, they remain largely uninvestable for my retail-investor audience and, frankly, a fairly depressing sector to cover. So, in the spirit of mixing things up and keeping things on a more positive note ahead of the long weekend (if you’re celebrating), I’ve decided to shift gears and pitch a performing REIT for a change.
After running a few screens (developed markets only), I came across an interesting sector/opportunity with healthy LT fundamentals yet still relatively attractive current pricing. While this week’s idea may not be a classic distressed credit play, it does share some key characteristics with performing credit, namely a high, stable dividend yield and a degree of inflation protection.
So, what caught my eye about this particular REIT? For starters, it’s a triple-net-lease REIT with diversified, long-term leases and healthy rent coverage, a nearly fully-hedged, low LTV debt profile, and a decent dividend yield (7%+). This REIT also has a number of other attractive features, including:
99% of leases are inflation-linked, providing a natural hedge against inflation/rising rates
High-quality portfolio, with over 80% of properties purpose-built in the last 15 years
Trading at a ~30% discount to reported NAV, with a recent track record of selling assets above book value
Recessions resilient sector insulating it from macro/inflation headwinds
Solid underlying demographic trends underpinning long-term growth in its target sectors
To be clear, this isn’t a multi-bagger, swing-for-the-fences type of investment. But for long-term, income-focused investors looking to add a little stability and current income to their portfolios, this REIT could be an attractive option. Given the company’s inflation-protected lease structure and high-quality asset base, there’s also potential for solid capital appreciation over time. In my base case, I think a mid-teens IRR is possible over time.
Disclosure: The information provided is for informational purposes only and should not be considered as investment advice. Any investment decisions made based on the information provided are at your own risk. It is essential to conduct your own research and consult a qualified financial advisor before making any investment decisions. Investing involves risks, and past performance is not indicative of future results. By using this information, you acknowledge that you are responsible for your own decisions and release me from any liability. Seek professional advice tailored to your financial situation and objectives.