A REIT with the World’s Safest Clients

03/16/2016 7:00 am EST

Focus: REITS

Tim Plaehn

Investment Research Analyst, Investors Alley

Our latest recommendation is a new public REIT that owns properties that are leased to federal government agencies, explains Tim Plaehn, income expert and editor of The Dividend Hunter.

Easterly Government Properties (DEA) plans to aggressively grow its portfolio of facilities and this growth should lead to a rewarding combination of attractive yield, dividend growth, and share appreciation.

Easterly Government was formed in 2011 by a group of executives with an average of 25 years of commercial real estate management experience.

At the time of its February 2015 IPO, Easterly owned 29 properties that were 100% leased, with 26 leased by federal agencies. Its goal is to acquire properties to lease to government agencies.

The handful of REITs operating in the government buildings sector has stable portfolios but little growth potential.

Easterly, however, has come into the government-leasing sector with more aggressive growth plans, seeking to acquire $75 million to $125 million of properties per year.

With a current enterprise value of about $750 million, that target equates to 10% to 15% annual growth.

The General Services Administration (GSA) sets up almost all government leases and is moving the federal government away from owned facilities.

Leasing to the GSA takes a high level of expertise to work through the government contracting process.

The fact that Easterly has its long-term leases with the world’s most financially safe client allows the use of moderate to high debt levels while still maintaining a secure balance sheet.

I am looking for the current $0.22 quarterly dividend to be increased by at least 10% over the next year. The DEA shares now yield 5.1%.

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