Diversification is essential for investors looking to mitigate risks and derive long-term returns. You can look to add multiple asset classes to your investment portfolio including stocks, bonds, gold, and real estate. While real estate investments require a significant amount of capital (equity and debt), you can look to buy shares of companies part of this sector and benefit from diversification. Here, we look at two real estate investment trusts that you can add to your portfolio right now.
CubeSmart has a market cap of $9.5 billion
The first REIT on the list is CubeSmart (NYSE: CUBE) which is valued at a market cap of $9.5 billion. Its self-storage properties are designed to offer affordable, easily accessible, and secure storage space for residential and commercial customers. A 2020 research report by Self-Storage Almanac ranks CubeSmart as one of the top three owners and operators of self-storage properties in the U.S.
CubeSmart is a REIT that has increased its revenue from $558 million in 2017 to $679 million in 2020. In the first quarter of 2021, its earnings per share stood at $0.21 while funds from operations were $0.47 per share. CubeSmart increased same-store net operating income by 9% year over year driven by 6.7% revenue growth and a 2% rise in property operating expenses. Its same-store occupancy in the quarter stood at 93.8%.
The REIT also established a 20% ownership position in a newly formed joint venture that acquires its initial store in Q1 for a purchase price of $14 million. CubeSmart added 31 stores to its third-party management platform during the quarter ended in March 2021.
The company’s net income attributable to shareholders stood at $41.7 million in Q1, compared to $37.9 million in the year-ago period. Its funds from operations rose over 20% to $98.4 million, from $80 million in Q1 of 2020.
Company CEO and President Christopher P. Marr. Stated, “Performance remains strong across the country as we continue to meet the needs of our customers in this rapidly changing environment.”
He added, “As we enter the busy rental season, record-high occupancy and an improving macroeconomic backdrop will continue to provide a positive operating environment. We remain disciplined in evaluating external growth opportunities with our continued focus on generating attractive risk-adjusted returns for our shareholders.”
In the last ten years, CubeSmart stock has gained 545% Despite these astonishing gains, its forward yield is still a healthy 2.9%.
Getty Realty
The second stock that I am bullish on is Getty Realty (NYSE: GTY), a REIT valued at a market cap of $1.45 billion. Getty Realty specializes in the ownership, leasing, and financing of convenience store and gasoline station properties. It owns around 900 properties and leased 58 properties from third-party landlords in 35 states in the U.S.
It focuses on owning free-standing properties leased to automotive-related retailers including gas stations with convenience stores or repair shops. It was able to collect 98% of the rent and mortgage payments owed last year, allowing the REIT to increase adjusted FFO per share by 7% in 2020.
In the first quarter of 2021, Getty Realty invested $30.3 million to acquire nine properties. The REIT also provided construction loans for three new convenience stores and expects to purchase them via sale-leaseback transactions.
It pays an attractive dividend yield of 4.8% which is significantly higher than the sector average yield of 3%. Getty Realty has six other redevelopment projects underway and five others in the pipeline allowing it to improve revenue and cash flows going forward, supporting its dividend growth strategy over time.
Getty Realty has a high payout ratio of 83.4% which suggests it retains less cash to accelerate expansion plans. So, it will have to fund investment plans by issuing debt or equity capital. In Q1 of 2021, its AFFO rose 8.6% year over year to $20.9 million. However, after adjusting for dilutive stock issues, AFFO was up 2.2%.
Disclaimer: The writer is an experienced financial consultant who writes for Finscreener.org. The observations he makes are his own and are not intended as investment or trading advice.
