We've heard a lot of doom and gloom around REITs since the pandemic shut down the economy.
Some of it is justified, of course. But one corner of the real estate market is nearly recession-proof, and we'll show you the three best REITs to own there, paying dividend yields over 5%.
Hotels are going to take a very long time to come back. And the spread of virus was the last punch to the chin of an already battered mall REIT sector.
The office sector could see significant changes in the month ahead as companies continue to embrace work-at-home policies. That's even after we have a vaccine and treatments that help end the national healthcare crisis and the economy can get back up to speed.
But some sectors may only have a little bump and will be right back up and running without suffering any lasting material damages.
These sectors provide services that are required for the country to run properly. The rents will be paid, and demand will start to increase the minute the virus is behind us.
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Best of all, the indiscriminate selling has pushed these REITs back down to levels that are attractive buy points for long-term investors.
One such sector is self-storage facilities.
Let's look at three storage REITs to buy now that will be great to own for years ahead.
Best REIT to Buy Today, No. 3: Public Storage
The 800-pound gorilla in the self-storage industry is Public Storage (NYSE: PSA).
This REIT is currently trading 31% below its 52-week highs.
Public Storage is one of the few companies that actually beat the analyst forecasts for the first quarter.
Earnings were higher in the first quarter of 2020 than in the same period of 2019. That's not something too many other REITs could claim this year.
Public Storage is a big company. It owns interests in 2,492 self-storage facilities located in 38 states with approximately 170 million net rentable square feet in the United States.
It also controls 42% common equity interest in PS Business Parks Inc. (NYSE: PSB), which owns and operates approximately 28 million rentable square feet of commercial space. Most of that space is industrial real estate, which has been one of the strongest sectors.
Outside of the United States, Public Storage owns approximately 35% of Shurgard Self Storage SA. This company owns 234 self-storage facilities located in seven Western European nations with about 13 million net rentable square feet operated under the Shurgard brand.
At its current price of $183 a share, investors of PSA can enjoy a 4.5% dividend yield that is unlikely to be cut anytime soon.
Several insiders have been exercising their options and keeping the shares, which is both unusual and highly bullish.
Best REIT to Buy Today, No. 2: Life Storage
Life Storage Inc. (NYSE: LSI) is also in the self-storage business.
Although not as big as Public Storage, this company still operates more than 850 storage facilities in 29 states and Ontario, Canada.
Three-hundred and four properties are managed either as joint ventures or as a third-party manager. Despite the economic damage done by COVID-19, Life Storage still has an occupancy rate of 89.5%.
Life Storage has been in growth mode.
The company began expanding to the West Coast and has seen significant jumps in revenue and cash flow over the past five years.
Its credit rating has improved over that time as they have maintained cost discipline and have been smart about finding new locations in good markets.
More importantly, the dividend has increased by 46% over the last five years. The shares yield 5.1%.
Several insiders, including the CEO, have made open market purchases of the stock since the pandemic began to spread across the United States.
But our best REIT has a unique twist on the storage business model.
And it pays an incredible dividend yield of 8%...
Our Top REIT to Buy Today
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Jernigan Capital Inc. (NASDAQ: JCAP) approaches the self-storage business in a somewhat different fashion.
Jernigan provides debt and equity capital to private developers, owners, and operators of self-storage facilities with a view to eventual outright ownership of facilities the company finances.
The REIT was well positioned as the crisis hit our shares, as it had just raised $15.4 million in a stock offering.
In March, the company took the additional step of increasing their credit lines to $375 million, so it had access to enough cash to weather the storm.
JCAP took a big step in the first quarter as it internalized its investment manager. Rather than paying management fees, Jernigan is now an owner and operator of its properties.
After that transaction was completed, the insiders now own more than 11% of the company. That's one of the highest insider ownership opposition in the REIT industry.
Internalization not only eliminates management fees but also gives the board and executives at Jernigan greater control of expenses.
Despite the already significant insider ownership, several executives, including the CEO, have been buying shares since the market began falling back in March.
The stock is yielding 8% at its current $11.85 price per share.
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About the Author
Garrett Baldwin is a globally recognized research economist, financial writer, consultant, and political risk analyst with decades of trading experience and degrees in economics, cybersecurity, and business from Johns Hopkins, Purdue, Indiana University, and Northwestern.