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STAG Industrial

3 Best REITs to Buy in June


Jun 06, 2020 by Jason Hall

Summer is kicking off, and investors seem convinced that the economy is set to come roaring back. So far things are looking good; consumers are spending more, and as more retail stores open, business does seem to be bouncing back. Whether it proves to be sustainable or not is another question, and the risk of a second COVID-19 wave should give investors pause, at least in the near term.

But within both the risks and the opportunities, there are plenty of REITs -- real estate investment trusts -- worth a close look, and several worth buying. After all, real estate remains an excellent investment over the long term, whether you're looking for dividends or capital gains.

Three REITs worth buying now are Retail Opportunity Investments Corp (NASDAQ:ROIC), Stag Industrial (NYSE:STAG), and Physicians Realty Trust (NYSE:DOC). Depending on your investing objectives, one or more of these three excellent companies could be the next great investment for your portfolio. Keep reading to learn more.

This deeply discounted retail REIT is safer than you think

You may hear "strip mall" and cringe. Even with many retail operations opening up in more of the country, physical retail has been feeling the disruption of e-commerce for several years. The past two-plus months of coronavirus lockdowns have only accelerated consumer use of online shopping.

And yes, e-commerce will continue to take sales away from brick and mortar. But Retail Opportunity Investments, or ROIC as it's commonly known, is more immune from this than it may seem. To start, the company focuses on the best high-traffic properties in upper-income demographic markets that it knows well on the West Coast.

Next, it focuses on properties with a grocery or pharmacy anchor tenant. This drives steady traffic across every economic environment, and that creates value and demand for the other units in its properties, whether for restaurants, salons, small local merchants, or large chains that gravitate towards high-traffic shopping centers.

As a result, all of its shopping centers are open, 77% of tenants are open for business, and it has collected over 70% of rents for May. These are terrible metrics during normal times, but they're far better than many other REITs are reporting today. The company suspended the dividend last month in order to focus on preserving cash as things played out, but with the stock down almost 40% from the 2020 high, investors could earn immense gains over the next couple of years as things return to normal.

Sure, there's risk that things get worse before they get better, but ROIC's tenant base of essential businesses gives it a nice margin of safety, while the current price offers enormous upside.

Two big trends driving STAG

STAG Industrial owns large single-tenant properties in 38 states, with many used for manufacturing. The shutdowns we have seen have not been great for domestic manufacturers, and an extended economic downturn could impact that segment for longer than expected. But the company also owns properties used for warehousing and distribution, which are critical for the growth and success of e-commerce.

So far, the diversification of its tenants is mitigating the financial impact of COVID-19. As of April 30, it had collected over 90% of rent and had only been asked for rent relief worth 4% of its annualized rent base. That could obviously change for the worse, but it's an indication that most of its tenants continue to operate and generate revenue they can use to pay their rent.

In addition to the continued strength from e-commerce and other distribution and warehousing, STAG is set to profit from the potential outcome of COVID-19 in regards to the global supply chain. It's likely that more companies will see the need to onshore more of their operations, and STAG is a key provider of the properties that fit this need.

With a dividend yield above 5% at recent prices, a strong existing business, and great prospects for growth, STAG Industrial is a great REIT for income and growth. With shares down 17% from the recent high, it's worth buying now.

A critical business for today and tomorrow

Nursing homes and seniors-housing REITs have struggled with the risk of COVID-19 infections in their facilities. In many parts of the country, facilities have seen new-resident intake go to zero, or even negative, as families take older family members home. The risk that a protracted COVID-19 pandemic could cause serious financial problems for the industry is reason for many investors to stay away from those REITs, at least for now, and look to safer REITs that still offer exposure to healthcare.

Physicians Realty Trust should be on your list if that sounds like you. The company owns medical offices, like doctor's offices, which have remained critically important during the crisis. The company said it took in 97% of April rent and has collected 93% of May rent as of June 1. Moreover, the long-term prospects for the medical office business remain very strong. An aging U.S. population -- by 2029 some 80 million Americans will be 65 or older -- is driving demand for more real estate dedicated to healthcare.

Yet, Physicians Realty stock is still being discounted. At recent prices, shares trade about 13% below the 2020 peak, and the dividend yield is still above 5%. If you're looking for a dividend stock with solid growth prospects and the ability to generate steady cash across any economic environment, Physicians Realty Trust should be on your list. Today's price makes it too compelling to ignore.

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Jason Hall owns shares of Retail Opportunity Investments. The Motley Fool owns shares of and recommends Physicians Realty Trust, Retail Opportunity Investments, and Stag Industrial. The Motley Fool has a disclosure policy.

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