The news flow over the weekend was pretty much as expected.
The financial press was focused on discussing whether we had or had not seen a bottom in stock prices and what the economy will look like when this mess is part.
What passes for mainstream media these days is mostly full of finger-pointing blame-casting along party lines on the major cable news outlets. (Am I the only one who wishes Walter Cronkite could be cloned?)
Local newscasters just look like they wish they had gotten engineering degrees instead of pursuing journalism in these weird and challenging times we are experiencing.
As the world becomes more global in nature, these outbreaks are going to become something we deal with on a regular basis.
In recent history alone, we have had to deal with SARS, MRSA, H1N1, and now the coronavirus as they escaped their place of origin and exploded across the globe.
There will be more in our future with varying degrees of severity.
When we do find the bottom, the rush will be on into the companies and sectors that will be able to make it through these destabilizing events and future-proof portfolios for the medium and long terms.
One of the best answers lies in a sector that may surprise you…
The REITs That Can Survive and Thrive
I know that REITs have been beaten like the 1962 New York Mets in recent weeks as the pandemic has shut down huge swaths of the economy, and there will probably be some casualties in certain groups.
However, there are a few select areas where the rent payments will keep flowing, and the occupancy rates will remain stable, allowing the REITs in this sector to provide above-average returns no matter what new outbreak hits our shores
I want to talk about what is probably the most stable group of REITs today.
Owning these REITs will allow us to capture a fantastic stream of dividends and sleep well at night, pretty much no matter what happens in the economy.
There are a handful of REITs that rent all of most of their properties to the Federal Government and its agencies or own real estate that benefits from a large government presence in the local economy.
These REITs will have little to no difficulty paying dividends and expanding at the same unfortunate rapid rate as the Government will be when this current crisis is past.
A Stable of Steady-Paying Renters
Office Properties Income Trust (NasdaqGS:OPI) was created in December 2018 when Government Properties Income Trust merged with Select Income REIT.
39% of their buildings are rented to the Federal Government. Currently, they have 189 properties worth $4.6 billion spread across 35 states.
More than 60% of their tenants have investment-grade credits, including several state governments, Bank of America Corp. (NYSE:BAC), IBM Corp. (NYSE:IBM), and Northrup Grumman Corp. (NYSE:NOC).
In 2019 they began selling noncore assets to strengthen the balance sheet.
They sold off $849 million worth of property and $104.7 million of RMR Group Inc. (NasdaqCM:RMR) stock to pay down debt.
The disposition of properties also allowed them to cut operating costs by $130 million.
The REIT currently pays a dividend of over 7%.
I see very little chance of that being cut anytime soon given the high credit quality of its tenants, a significant percentage of their leases have years until they expire.
Most have annual rent escalation clauses of 2-3 %, so they may well be one of the few REITs that can raise their payout over the next couple of years.
Washington Real Estate Investment Trust (NYSE:WRE) is another REIT that could benefit from the stability and growth of the Federal Government.
Their property portfolio is concentrated in the Washington D.C. market and they rent office, retail, and multifamily properties to those who work for the Government and companies that do business with the Federal Government.
Their Northern Virginia portion of the portfolio will also see benefits form their proximity to the Amazon headquarters located in the region.
That region is dominated by tech companies that do business with the fed and The Dulles Tech Corridor captures 37% of all federal technology contracts.
That number should grow over the next few years.
100% of Washington REITs properties in the area are within one mile or less of a metro stop, so commuting to the properties is much easier than dealing with the notorious D.C. beltway traffic.
Washington REIT has been around since 1960, doing business in the Washington D.C. marketplace.
They have seen every crisis along the way, whether it be economic, political, or health-oriented, and they have not only survived, but thrived during all of them.
The shares were up 15% last week, so I would wait for a pullback to enter a position in Washington REIT is an excellent long-term core REIT holding.
With steady-paying tenants locked up in leases for the next several years, these two REITs are poised to have the cash flow necessary to make it through this crisis and put the money to work when the markets stabilize.
Those intrepid investors that join them can enjoy what is poised to be a wildly profitable ride.
To the Max,
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Source: Max Wealth