Marty Fridson, editor of Forbes/Fridson Income Securities, is a leading specialist in a wide variety of dividend investment areas; here, he looks at two REITs recommended for low-risk, tax-deferred portfolios.
Agree Realty Corp. (ADC) is a retail REIT with a portfolio value in excess of $6.0 billion. As of 06/30/22, the company owned and operated a portfolio of 1,510 community shopping centers and single tenant properties located in 47 states, with approximately 31 million square feet of gross leasable space.
ADC operates nationwide excepting Vermont, Alaska, and Hawaii. ADC’s solid credit profile is supported by its low leverage, flexible capital structure, and strong liquidity characteristics.
Moreover, the REIT has a very resilient operating portfolio that largely consists of unencumbered properties. The REIT’s liquidity position and access to capital are reinforced by its activities in the equity capital markets, which the firm has accessed to fund its property acquisition strategy.
ADC reported 1Q 2022 adjusted funds from operations (AFFO) of $69.2 million or $0.97 per share, up 16.4% from a year ago and topping analysts’ $0.94 estimates. Total revenues of $98.3 million also edged out expectations. At the end of 1Q 2022 the ground lease portfolio was fully occupied, while the total portfolio was 99.6% occupied with a weighted average remaining lease term of 9.1 years.
This investment’s dividends are taxed as ordinary income, The firm’s common shares are suitable for low-risk tax-deferred portfolios. Buy at $88.00 or lower for a 3.20% annualized yield.
Public Storage, Inc. (PSA) is a real estate investment trust and the world’s largest owner-operator of self-storage facilities. The company has more than 2,600 facilities across the U.S. in 39 states and Europe, with more than 182 million net rentable square feet.
The REIT has demonstrated strong but conservative growth, with moderate debt leverage. Earnings and profitability measures have been strong, underscored by PSA’s solid credit ratings. The public storage sector has successfully navigated the major challenges posed by the pandemic, higher interest rates, and the threat of an economic recession.
PSA reported very strong 1Q 2022 core funds from operations (FFO) of $643.4 million or $3.65 per share. Core FFO benefited from strong occupancy and a 19.3% increase in net operating income (NOI) from a year ago. Same store revenues were up 15.8%.
We recommend the Public Storage, Inc. 4.10% Fixed Rate, Cumulative Preferred (PSA-K). This preferred security is fixed rate and callable on or after 12/20/24. Dividends are taxed as ordinary income, given the REIT’s tax status.
This issue’s solid investment grade ratings, combined with PSA’s strong credit metrics, make it a suitable investment for low-risk tax-deferred portfolios. Buy at $25.25 or lower for a 4.06% annualized yield and a 3.86% yield to call.