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With This REIT Trending in the Right Direction, Will Its Stock Rebound?

By Motley Fool Staff – Jan 7, 2022 at 1:00PM

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Despite stock turbulence, this REIT might be in a better position than it looks.

Though retail has struggled particularly over the past year, industrial real estate has surged in demand. In this clip from Motley Fool Live, recorded on Dec. 9, Motley Fool contributors Marc Rapport, Matt Frankel, and Jason Hall discuss which REIT shows promise and is trending in the right direction despite drops in stock price.

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Marc Rapport: Right now, I've been thinking a lot about Global Net Lease, GNL (GNL 0.24%). This is also a REIT, a Real Estate Investment Trust. They are small. They're not one of the big ones. But they have dropped 20% since I bought them in the summer. I think they're in a better position than it might look. They're a mix of office and industrial. They are the good, the bad, and the ugly in terms of the pandemic. It's an office, industrial, and retail. Their industrial seems to be doing pretty well. Of course office has struggled and retail struggled. They're over 50% in industrial and that's doing well. They have 312 properties. About 60% is in the U.S., rest [is] mostly in the U.K. They just bought a Walmart (NYSE:WMT) in the U.K. Their yield, I'm probably guilty of chasing yield, but I'm at the tender stage in my life work where income matters as much as growth. I want to support the income part of my portfolio. They are yielding, as of today, almost 11%, which seems dangerously high to me. Their payout ratio is over 100% right now. No, it fell. I'm sorry. I'm looking here now. It just fell to 91% in the third quarter. That's not bad. Their FFO per share has been growing. I think they show promise. As far as the stock price itself, they've recovered. They fell to about 13.5 on the first of the month. They're back up to over 15.

Matt Frankel: The payout ratio is a little high for comfort. But I will say that industrial is an extremely hot type of real estate right now. There are a lot of key markets where industrial is virtually 100% occupied. There's not enough supply to meet demand. There are tenants on waiting lists to get more space. E-commerce just exploded over the past year with COVID. I saw they also announced a Walmart learning center. Walmart's becoming more of a big tenant of theirs. Industrial is just a great play right now and that's a way to get some yield. Like I said, the payout ratio's a little high for comfort but not a red flag in and of itself.

Rapport: Yeah, I would just ask what their ticker is. It's GNL, Global Net Lease, which really does speak to exactly what they do.

Jason Hall: I wanted to just show this real quickly because I think it really emphasizes the important thing here and that's the trend. Looking at the cash payout ratio, because with REITs, the regular payout ratio based on their GAAP earnings can be misleading. On a cash dividend payout ratio, here's the key thing. It's trending in the right direction. I think that's the important thing I really wanted to emphasize.

Rapport: Thank you for pointing that out. I appreciate it. Their top 10 tenants are big names e.g., FedEx (NYSE:FDX) and their biggest office tenant, ING (NYSE:ING).

Frankel: Awesome. You can't go wrong with industrial real estate right now unless they are a really terrible operator which they're not.

Jason Hall has no position in any of the stocks mentioned. Marc Rapport owns Global Net Lease. Matthew Frankel, CFP® owns FedEx. The Motley Fool owns and recommends FedEx. The Motley Fool has a disclosure policy.

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