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Tanger Factory Outlet Centers

3 Income REITs to Buy Now


Mar 01, 2021 by Matt Frankel, CFP
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The real estate sector is somewhat unique in that it is one of the only places in the stock market you'll find a nice selection of companies with above-average dividend yields and lots of long-term growth potential. Real estate investment trusts, or REITs, can be excellent choices to create a reliable stream of income and to achieve excellent total returns in your portfolio over time.

With that in mind, three excellent income REITs investors might want to take a closer look at right now are Tanger Factory Outlet Centers, Healthpeak Properties, and Crown Castle.

Company (Symbol) REIT Category Dividend Yield
Tanger Factory Outlet Centers (NYSE: SKT) Retail 4.5%
Healthpeak Properties (NYSE: PEAK) Healthcare 4.0%
Crown Castle (NYSE: CCI) Infrastructure 3.3%

Data source: CNBC. Dividend yields as of 2/23/2021.

Tanger Factory Outlet Centers

Tanger Factory Outlet Centers has been a fantastic performer recently, with shares up by 63% so far in 2021. And there's a very good reason for that -- the company's performance has been pleasantly surprising to investors.

In its fourth-quarter earnings report, Tanger reported nearly $53 million in core funds from operations (or FFO, the REIT version of earnings), which is a decline of about 8% year over year but is much better than investors had expected from a REIT with mostly discretionary retail tenants. The company now has $84 million of cash on its balance sheet and is projecting core FFO of $1.52 in 2021, based on the midpoint of the company's guidance.

Perhaps most impressively from a long-term perspective is that Tanger reported customer traffic at its properties had rebounded to 99% of pre-pandemic levels in the first few weeks of 2021, which shows that there is clear consumer demand for outlet shopping and that it's likely to remain a key component of the retail strategy for years to come.

Healthpeak Properties

Healthpeak is a healthcare REIT that focuses on three specific types of properties: senior housing, medical offices, and life science.

Now, senior housing is obviously not a great business to be in right now. The COVID-19 pandemic hit the industry hard, and it could take years before senior housing move-in rates get back to pre-pandemic levels. In fact, Healthpeak's same-store net operating income (NOI) from its senior housing operating portfolio fell by 27.5% in 2020.

However, there are two big reasons Healthpeak is worth owning now. For one thing, senior housing has some major long-term growth tailwinds, despite the short-term issues. The 85-and-older population (senior housing's core demographic) is expected to roughly double over the next 20 years, so there's going to be a need. And second, medical office and life science real estate are two of the most resilient types of commercial real estate in the market. Life science in particular has some compelling growth prospects. Healthcare innovation has never been higher, and the need for life science properties is growing fast; in fact, most of Healthpeak's development activity is in the life science industry right now, which could pay off for patient investors.

Crown Castle

Crown Castle is an infrastructure REIT. Specifically, the company owns and operates communications towers, fiber optic networking, and more. It operates in every major U.S. market and has a massive portfolio that consists of more than 40,000 towers, 70,000 small cell nodes, and about 80,000 miles of fiber optic infrastructure. It leases its infrastructure to major communications providers, including big names like Verizon (NYSE: VZ) and AT&T (NYSE: T).

Not only is Crown Castle a great income stock now, but it stands to benefit tremendously from the long-tailed rollout of 5G communications infrastructure in the United States over the next several years. Plus, this is an extremely resilient type of business, as even in tough economic times (including pandemics), people need reliable ways to stay in touch.

Buy for the long term

As a final thought, it's important to point out that REITs are best suited for long-term investment vehicles. There is simply too much that can affect their returns in the short run, and these market forces are impossible to predict with any degree of accuracy. So, while these three REITs could certainly be quite a roller-coaster ride over any period measured in months, they can be excellent investments for people who measure their returns in decades. Invest accordingly.

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Matthew Frankel, CFP owns shares of AT&T, Healthpeak Properties, Inc., and Tanger Factory Outlet Centers. The Motley Fool owns shares of and recommends Crown Castle International. The Motley Fool recommends Healthpeak Properties, Inc., Tanger Factory Outlet Centers, and Verizon Communications. The Motley Fool has a disclosure policy.