7 Niche REITs for Growth and Income

Not all REITs are created equal. Some are very sensitive to the economic cycle and have been hit hard as investors worry about rental and lease payments to property owners. Several MoneyShow.com experts look to select REITs that they believe are in niche markets that will remain strong despite economic worries.

Tom Hutchinson, Cabot Dividend Investor

Innovative Industrial Properties (IIPR)  , yielding 4.6%, is a marijuana farm real estate investment trust. The stock has had a rollercoaster week. It took a bit of a drubbing recently when it announced a new stock offering of over a million shares. It's a bummer because it dilutes shareholdings.

But that's what REITs do to raise money, along with borrowing, because they pay out earnings in dividends. The good REITs get a temporary blip from the news and then bounce right back as investors realize they are capable of using the money to grow earnings enough to offset the share dilution.

That's what happened here. IIPR is actually up significantly of late as investors realized the company is growing earnings and the dividend at a fever clip. We rate Innovative Industrial as a buy.

Tony Daltorio, Investors Alley's Growth Stock Advisor

One longer-term trend that has been pushed forward by years by the pandemic is online grocery shopping. A recent survey found that 43 million U.S. shoppers placed 73.5 million online grocery orders in May, at an average of $90 per order -- a 24% increase over April and a 450% increase since August 2019.

A conservative way to play the online grocery shopping trend, there is the world's biggest REIT focused on refrigerated warehouses: Americold Realty Trust (COLD) .

Americold has a 2.33% yield. With its business doing well, I expect its current quarterly dividend ($0.21 a share) to steadily rise a penny or two per year.

Refrigerated warehouses account for the majority of the company's revenues (78%) and its net operating income (NOI; 94%). Americold serves 2,500 customers, including a who's who of the food industry.

Its warehouses are an indispensable component of the food industry infrastructure. The company owns and operates 178 temperature-controlled warehouses, with about 1.1 billion refrigerated cubic feet of storage, in the United States, Australia, New Zealand, Canada and Argentina.

With consumers embracing online grocery shopping, demand for cold storage facilities for storing frozen goods is rising quickly. Americold has a 23% market share in the United States and a 4.2% market share worldwide.

Tony Sagami, Weiss Ratings' Daily Briefing

Americans are shopping over the Internet in massive waves. As investors, there are huge implications and opportunities among the behind-the-scenes businesses that make it possible for our orders to show up on our front porch.

One part of the e-commerce food chain that I think is grossly overlooked by investors is logistics real estate -- the warehouses, distribution facilities and fulfillment centers that temporarily house the goods you buy over the Internet.

Whenever a retailer sells you something, it has to move its goods from point A to B and several warehouse points in between. With the rapid growth of e-commerce, it has equally increased the need for logistics real estate.

One company that owns more logistics real estate than anybody else is Prologis, Inc. (PLD) . It owns 797 million square feet of prime warehouse distribution space that is specifically designed to temporarily hold and then transfer e-commerce orders to our homes.

Not to mention, they own 3,793 buildings across the globe and have 5,100 customers. Prologis practically owns this market in North America. With Amazon  (AMZN) , FedEx  (FDX) and Walmart  (WMT) as Prologis' three largest tenants, that's not too surprising.

And business is booming. Moreover, business is so good that Prologis is enjoying a 96%-plus occupancy rate and has been able to raise its rents by an average of 4.3% over the last year.

And there's no question that the 797 million square feet (and growing) of distribution warehouses that Prologis owns is going to get more and more valuable as e-commerce grows. The REIT currently pays a $0.53 quarterly dividend, and the next one will be paid at the end of June.

Bryan Perry, Cash Machine

STORE Capital Corp.  (STOR) is one of the largest and fastest-growing net-lease real estate investment trust (REIT). The firm is the leader in the acquisition, investment and management of Single Tenant Operational Real Estate -- hence, the acronym STORE, which is the firm's target market and the inspiration for its name.

STORE Capital also owns a large, well-diversified portfolio that consists of investments in more than 2,500 property locations across the United States. All of these locations are profit centers. The company specializes in retail properties that are less vulnerable to e-commerce retailing trends.

If you need a haircut, a change of tires, a massage, a pizza, a nice dinner out, an equipment rental, a fishing boat, a new sofa, child care, a gym workout, car repair, pet care, medical or dental services, lumber and materials, a new or used car or warehouse services, STORE is invested in these markets.

Commenting on dealing with the coronavirus pandemic, CEO Christopher Volk said, "We have fortified our balance sheet with excess liquidity and have modest leverage and no meaningful near-term debt maturities."

STORE reported first-quarter adjusted funds from operations (FFO) of $0.49 per share that matched the consensus of $0.49. It reported first-quarter revenue of $177.9 million versus the consensus of $178.4 million, up 14% from $156.6 million in Q1 2019.

The increase was driven primarily by the growth in the size of STORE's real estate investment portfolio. The company ended the first quarter of 2020 with an occupancy rate of 99.5%.The current dividend yield of around 6% is good money and the stock will make a fine addition to our portfolio.

Jim Powell, Global Changes & Opportunities Report

Millions of Americans have learned from personal experience that their comfortable lives can be upended at any time - and with no warning.

I believe that shock will make people unwilling to make long-term financial commitments -- and the feeling will last many years. Demand for buying houses is likely to decline sharply -- but rental demand should soar.

I think Camden Property Trust  (CPT) will be one of the winners in the multifamily (apartment) industry. This REIT owns or has stakes in over 56,000 apartments in 165 developments.

Most units are in the American Southwest and Washington, D.C. that -- before Covid-19 -- ranked in the nation's top 25 for population and employment growth. The regions that Camden serves should be among the first to recover once the health emergency decreases.

John Dobosz, Forbes Dividend Investor

Boston, Mass.-based STAG Industrial  (STAG) is a real estate investment trust focused on the acquisition, ownership, and operation of single-tenant, industrial properties such as warehouses and distribution centers throughout the United States.

At the end of the first quarter of this year, STAG's portfolio consisted of 456 buildings in 38 states with approximately 91.8 million rentable square feet.

Its largest customers include companies in air freight and logistics, automotive, and industrial equipment. Revenue this year is expected to grow 13% to $458.3 million, with funds from operations of $1.84 per share, flat from last year.

Recently at 13.6 times funds from operations, STAG trades at a 5.5% discount to its five-year average price-to-FFO ratio of 14.4. STAG is a monthly dividend payer.

Dividends from REITs are taxed at your marginal income tax rate, but only 62% of dividends paid by STAG last year were taxable, with the remainder treated as a return of capital, which reduces your cost basis in the stock. Director Francis Jacoby has purchased $122,000 worth of STAG shares since March.

John Buckingham, The Prudent Speculator

Physicians Realty Trust (DOC) is a small-cap health care REIT that acquires, owns and manages properties that are leased to physicians, hospitals and health care delivery systems, and other health care providers.

Its properties are typically on a campus with a hospital or strategically located and affiliated with a hospital or physician organization. After falling more than 40% earlier this year, shares have since rallied-but are still down in 2020.

While there will continue to be near-term operational hurdles, DOC just announced that it collected 96.8% of its April rents due and 93.3% thus far of May rents. It also said relief requests from tenants have slowed as restrictions on surgical procedures have now been lifted, with new requests in May accounting for less than 1% of its overall annual base rent.

We continue to favor the expertise and experience of the management team, as well as the favorable demographic trends (20% of the U.S. population is projected to be older than 64 before 2030). We also like the continued focus on leveraging its physician and hospital relationships nationwide to invest in off-market assets that maximize shareholder returns. The yield is 5.0%.