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The 3 Safest REITs to Buy Right Now

Mar 17, 2021 by Matthew DiLallo
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Last year was a challenging one for many real estate investment trusts (REITs). Some tenants couldn't afford to pay their rent due to the impact the COVID-19 outbreak had on the economy. Because of that, several REITs had to slash or suspend their dividends.

However, some REITs passed last year's stress test with flying colors thanks to the strength of their balance sheet and the durability of their portfolios. Three that stand out as excellent options for investors seeking safety are Agree Realty (NYSE: ADC), Camden Property Trust (NYSE: CPT), and Duke Realty (NYSE: DRE).

The safest kind of retail

Last year was a brutal year for most physical retailers. The pandemic forced most consumers to do more shopping online, which hurt foot traffic and in-store sales, especially for nonessential items like apparel and home goods.

However, retail REIT Agree Realty weathered this storm quite well due to its focus on owning freestanding properties triple net leased to primarily investment-grade rated essential retailers. Because of that, the REIT collected or agreed to defer almost all the rent it billed during the pandemic. Meanwhile, the company took advantage of the market conditions to gobble up more freestanding retail properties, investing a record $1.36 billion on new additions. Those factors enabled the REIT to grow its FFO and dividend.

Meanwhile, Agree Realty ended last year in excellent financial shape. It has an investment-grade credit rating, backed by a low leverage ratio and a conservative 75% dividend payout ratio. Because of that, it has the financial flexibility to continue acquiring properties, which should enable it to keep increasing its dividend.

A safe way to become a landlord

This past year also brought challenges to apartment owners. However, the biggest headwinds were in high-cost coastal cities because people fled to lower-cost suburban areas or Sun Belt cities. Those trends played into the hands of residential REIT Camden Property Trust, which focuses on suburban and Sun Belt markets. Because of that, its occupancy level, rental rates, and earnings held up much better than other apartment REITs focused on high-cost coastal cities.

Another great safety feature with Camden Property is its balance sheet. The REIT has A-rated credit backed by low leverage metrics and minimal near-term debt maturities. It also has a conservative dividend payout ratio. Those factors gave it the financial flexibility to make acquisitions and fund its development projects, which should allow it to continue growing its cash flow and dividend.

In a position of strength

While the pandemic was a headwind for physical retailers, it was a massive tailwind for industrial real estate because it benefitted from the accelerated adoption of e-commerce. That's evident in Duke Realty's results, as the industrial REIT collected or deferred 99.9% of the rent it billed last year. Further, the REIT enjoyed record occupancy levels. That enabled it to start nearly $800 million of new development projects to drive future growth.

Duke has ample financial flexibility to continue expanding. The REIT has a strong investment-grade credit rating backed by "A-level" leverage metrics and no significant debt maturities until 2023. It also has a conservative dividend payout ratio. That exceptional financial profile enabled the REIT to boost its dividend again last year. This upward trend in its dividend should continue as the REIT increases the rent on its existing properties and completes additional development projects.

Proven safety amid the storm

Agree Realty, Camden Property, and Duke Realty demonstrated the strength of their balance sheets and their portfolios' durability last year. Because of that, they had the flexibility to continue growing their real estate footprints and dividends. That combination of safety features and steady growth amid the storm makes these REITs great buys for investors looking for lower-risk options.

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Matthew DiLallo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.