I’m known around The Motley Fool as “The REIT Guy” by many of my colleagues and readers, so it shouldn’t come as much of a surprise that my own stock portfolio is full of REITs, or real estate investment trusts. In this Fool Live video clip, recorded on July 16, I discuss my largest REIT positions with my colleague Brian Withers and our chief growth officer Anand Chokkavelu, and why I love each one for the long term.
Matt Frankel: I’m the real estate guy, so not surprisingly, my biggest category is real estate investment trusts, or REITs. I have seven of them in my top 20. They are Digital Realty Trust (NYSE:DLR), STORE Capital (NYSE:STOR), Empire State Realty Trust (NYSE:ESRT), Healthpeak Properties (NYSE:PEAK), Tanger Outlets (NYSE:SKT), Realty Income (NYSE:O), and Ryman Hospitality Properties (NYSE:RHP). If you haven’t heard of any of those or don’t know what they do, you’re probably not alone. This is where Brian and my investing styles differ. Most of his stocks needed no explanation. Everyone knew what they were.
What does these do? Just two-sentence explanations of each ones. Empire State Realty, this is my largest stock position by dollars. It’s a little bit more than, I think, 7% of my portfolio right now, a little bit more than that. They own the Empire State Building, they own some other office real estate in the Manhattan and surrounding areas. One big differentiator, other than the fact that they own such an iconic property, is that they also operate the famous observatory on top of the Empire State Building, which is still a must-do tourist attraction in New York City. That’s an absolute cash machine. In normal times, they make about 25% of their income from that, even though it makes up something like 3% of their square footage. Cash machine business. Most office REITs don’t have anything comparable in their portfolio.
Realty Income, they are the first realty I ever bought. They own over 6,500 freestanding properties, mostly leased to non-discretionary retailers. Think of companies like Walgreens, that’s, I think, their biggest tenant. They own a lot of Dollar Store properties, wholesale clubs like BJ’s and Costco and things like that. They own those kind of properties, freestanding meaning one tenant. They have a great track record of performance. Does the slideshow look better now?
Anand Chokkavelu: It does.
Frankel: Awesome. Sorry, Tim. Anyway, Realty Income. There we go. They have a great track record of performance. They’ve been a public company since 1994. Since that time, they have delivered annualized returns greater than 15% a year, which is an excellent track record over 27 years. They’re a Dividend Mristocrat. They actually have a trademark on the term “the monthly dividend company,” which a lot of people don’t realize. That is there if you talked about the monthly dividend company, that is Realty Income. Great performance, great income. Digital Realty data center. This is the only one that Brian said he might buy.
Brian Withers: I do own Square.
Frankel: Okay. Well, out of the REITs. I call them a different kind of tech stock. They own the actual properties that house the servers and networking equipment that Brian’s stocks rely on pretty much. Great way to play that to real estate, Tanger Outlets. If you live in a coastal area, you’ve probably seen a Tanger Outlets property. I know there’s one close to Anand in the National Harbor.
Frankel: Yeah, they’re the biggest stand-alone outlet shopping company. Simon Property Group (NYSE:SPG) is the leader in the space, Tanger is the biggest one that only focused on outlets. I’ll make the slide deck available to whoever wants it, by the way. Store Capital, very similar business to Realty Income. Newer, it got on my radar because it’s the only read that Warren Buffett invest in through Berkshire Hathaway. Healthpeak properties. Healthcare is a great growth trend long term. They invest in life science properties and medical offices and a smaller concentration in senior housing. Great growth market. The healthcare industry is just going to explode over the next few decades.
Finally, and then I’ll shut up and see what these guys think about them, Ryman Hospitality Properties. It’s probably my favorite hotel company in the world. They own five massive hotels all under the Gaylord brand name. If you’re a national person, you know of the Ryman Auditorium where the company gets its name, the Grand Ole Opry, and the Ole Red restaurant chain that was opened in partnership with Blake Shelton. They own that as well. Not a total real estate play there, actually, they have a restaurant business and the Gaylord, I believe the full actually had an event at the Gaylord at one point.
Withers: They did.
Frankel: What are your thoughts on all of these? Are these really “OK boomer” stocks or are they appropriate retirement investments?
Withers: I guess, when I looked at the financials for these, they operate very differently than my tech stocks and software stocks. They are buying infrastructure, whether it’s land, property, building buildings, various places along. Then they use those assets and those physical buildings to then make money. One of the things that I look at as I look at companies, is I want them to be more virtual. Companies with more distribution centers or manufacturing centers or have to have retail outlets to capture revenue are not things that I’m interested in, and that’s exactly how these guys make money, right? They have buildings and that’s how they make money. But the Digital Realty one is one that piqued my interest very much and it ranked pretty high on my scores as well.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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