When real estate investment trusts (REITs) are mentioned, most investors think of office space, apartment buildings and shopping malls. However, the REIT universe includes a much wider variety of properties. Today investors can purchase REITs that own cell towers, data centers, billboards, timber and even farmland.
Like traditional REITs, these niche players offer reliable dividends, but with the added bonus of better income opportunities and even unusual growth potential.
They also boast less risk exposure to interest-rate swings. Traditional REITs sometimes lose value when interest rates spike because the present value of future dividends declines. The performances of most niche REITs, however, are more aligned with the customers they serve. An example is datacenter REITs, which have risen in value due to the expanding data storage demands of their tech customers.
Niche REITs also may improve a portfolio's diversification thanks to their low correlations with other stocks. Timberland has less than a 14% correlation with the S&P stocks, and farmland is a low-risk investment that performs well during stock market meltdowns or spiraling inflation. Diversification is in part why
The best reason to own specialized REITs, however, may be to gain low-risk exposure to high-growth industries. Data center REITs are tech-focused real estate plays on big data, cloud computing, streaming content and social media. With the world's data volume forecast to double every two years, these tech sectors are booming. Similarly, cell tower REITs provide infrastructure that supports exponential growth in mobile data and smartphones.
Investors who own these 10 "unusual" REITs may collect traditionally high yields while also capturing outsize growth opportunities.
American Tower Corporation
Market value: $60.3 billion
Dividend yield: 2.0%
This REIT has invested nearly $20 billion over the past five years to acquire and construct communications assets. Future plans call for stepped-up investments in emerging markets like
In the
Few REITs can match
Last December,
CorEnergy Infrastructure Trust
Market value: $458.6 million
Dividend yield: 7.7%
At present, CorEnergy owns two natural gas pipelines in the Midwest; a gas-liquids gathering, processing and storage system in the Southwest; an undersea-to-onshore oil pipeline and storage terminal on the
The REIT's largest asset is the Grand Isle Gathering System, which consists of 153 miles of undersea pipelines transporting oil and gas from six fields in the Gulf of
Its second major asset is the Pinedale Liquids Gathering System, comprised of 150 miles of pipeline and four storage facilities in the Pinedale field - one of the most prolific gas-producing regions in the
The REIT plans to acquire more energy assets, especially energy pipelines and storage terminals. CorEnergy focuses on long-lived, strategically located assets that are vital to the operations of its customers and with high barriers to entry.
CorEnergy has grown earnings 47% annually over the past half-decade. It also has paid 10 consecutive quarterly dividends of 75 cents, and management believes the $3 annual dividend is sustainable in 2018.
CoreSite Realty
Market value: $3.6 billion
Dividend yield: 3.6%
Expansion and development projects are underway at six of its eight data campuses. Expansion projects at data campuses in
CoreSite has more than 1,200 customers, many of which are Fortune 100 companies. The REIT benefits from robust data storage demands that are supporting high lease renewal rates and rising rents. Last year, CoreSite renewed 871 leases at rents averaging 7.3% higher and signed 478 new or expanded leases.
The REIT has leveraged 60% growth in its customer base to generate 23% annual growth in funds from operations (FFO, an important measure of REIT profitability) since 2011 and 36% annual dividend growth. COR even improved its payouts twice in 2017; an 11% increase at mid-year was followed by a 9% dividend hike in the fourth quarter.
Keybanc analyst
Crown Castle International
Market value: $41.9 billion
Dividend yield: 4.0%
CCI invested more than $10 billion last year to expand its communication infrastructure. Crown closed its largest deal ever, too, paying $7.1 billion for Lightower, which expands its presence in Northeastern cities like
Crown recently signed two new long-term customer agreements and raised its 2018 outlook. Longer-term, the REIT expects high levels of network investment by major customers to drive robust leasing activity.
FFO per share has grown 14% annually over the past decade. Crown began paying dividends in 2014, and looking forward, it expects to improve its payout by about 7% to 8% per year.
Thirteen of the 21 analysts following Crown rate the shares "Strong Buy" or "Buy," and none recommend selling the stock.
Digital Realty Trust
Market value: $21.5 billion
Dividend yield: 3.5%
Data demands from new cloud computing applications such as artificial intelligence, virtual reality and the Internet of Things are fueling the REIT's growth.
The REIT plans to grow through acquisitions and by entering new markets. For instance, it paid $6.2 billion last year to acquire DuPont Fabros Technology, giving it a bigger footprint in the
DLR has increased its dividend for 13 consecutive years, at a 12% annual rate.
Baird analyst
Gladstone Land
Market value: $177.8 million
Dividend yield: 4.2%
Gladstone invests in farmland for growing fresh produce (fruits and vegetables), which tends to be less price-volatile than commodity crops such as corn and soybeans. Demand for fresh produce has tripled over the past four decades, and price increases have significantly outpaced inflation. A steady national decline in the amount of farm acreage available also is driving up the value of Gladstone's farmland.
In 2017, the REIT paid $131.6 million to acquire 12,802 acres, primarily in the Southwest. Acquisition opportunities are plentiful as nearly 65% of
Since going public in 2013, the REIT has increased revenues sixfold, grown adjusted FFO per share more than 100% annually and made 62 consecutive monthly dividend payments. Dividends have increased 10 times, coming in small fractional improvements throughout the year.
Five of the six analyst firms that follow Gladstone rate the stock "Strong Buy" or "Buy."
Hannon Armstrong Sustainable Infrastructure Capital
Market value: $1.0 billion
Dividend yield: 6.7%
Hannon Armstrong (HASI, $19.61) is a sustainable infrastructure REIT that invests in solar, wind and energy efficiency assets, primarily through investments in regulated utilities. Roughly half of its investments are solar assets, with the remainder evenly divided between wind and energy efficiency projects. The REIT has $4.7 billion in assets under management and targets approximately $1 billion in new transactions annually.
Hannon Armstrong partners with Fortune 1000 companies on infrastructure projects and is the largest investor in efficiency projects for the
Growth drivers include increasing utilization of wind power, which accounts for more new power generation than any other source, and a $30 billion
In the last four years the REIT has invested in 175 projects and grown its portfolio 30% per year. Yields on projects, which have an average lifespan of 12 years, have consistently exceeded 6%.
The company's FFO grew by 6% in 2017, and Hannon is guiding for 2%-6% annual EPS growth over the next three years. Meanwhile, the dividend has improved for five consecutive years at a 26% annual rate.
Five of the six analyst firms monitoring Hannon Armstrong have "Strong Buy" ratings on the stock.
Iron Mountain
Market value: $9.7 billion
Dividend yield: 6.7%
Customers need document storage during economic booms and recessions alike, and
The REIT's earnings have improved by 6.4% annually over the past five years, and FFO growth accelerated to 12% last year;
Lamar Advertising Company
Market value: $6.6 billion
Dividend yield: 5.3%
Lamar owns roughly 149,900 billboard displays, 2,800 digital billboards and 53,300 transit displays across
Hurricane Maria hurt the REIT's
The REIT closed $177.4 million of purchase transactions in 2017 and added more than 300 digital billboards to its portfolio. Lamar plans to add another 150 digital billboards through buildouts this year.
Since converting to REIT status in 2014, Lamar has raised dividends 10% per year, including a 10% increase already approved in 2018.
Weyerhaeuser
Market value: $27.6 billion
Dividend yield: 3.5%
The primary driver of demand for timber products is housing starts, and with nearly 1.3 million
WY has grown EPS 7.4% annually over the past five years. In 2017, the REIT improved pre-tax earnings by 30%, generated the highest cash flow from its Wood Products business in 13 years, and captured nearly $140 million in operational cost savings.
Since converting to a REIT in 2011,