REITs (real estate investment trusts) can be a lucrative part of a Black investor’s portfolio. “Nearly all investors would benefit by exposure to REITs,” Morris Armstrong, financial strategist and founder of Morris Armstrong EA, told Bankrate.
But like all investments, REITs have risks. So the more knowledgeable you are, the better.
Here’s the 411 on REITs and some ways to invest in these trusts.
What is a REIT?
A REIT is a company that is like a mutual fund for real estate. It owns, operates, or finances income-generating real estate and pools the capital of numerous investors. REITs make it possible for individual investors to earn dividends from real estate investments without buying, managing, or financing any properties themselves. Most REITs are publicly traded, and REITs can invest in most real estate property types, such as apartment buildings, cell towers, data centers, hotels, medical facilities, offices, retail centers, and warehouses.
What Are the Different Types of REITs?
There are several types of REITs, such as public non-listed REITs and private REITs. But the two main types of REITs are equity and mortgage.
Equity REITs are companies that own income-producing real estate like office buildings.
Mortgage REITs buy mortgages and mortgage-backed securities. Mortgage REITs make money from mortgage loan interest.
How Do You Invest in REITs?
You can invest in a REIT through a brokerage account or on a trading app just as if you’re buying a stock. While you’re buying a real estate trust, you’re not exactly buying the property itself, and you’re buying shares in the corporation that actually owns the property.
While you’re buying a real estate trust, you’re not precisely buying real estate itself.
REITs have to meet these requirements:
- Invest 75 percent of the trust in real estate.
- Get 90 percent of its income from rent or real estate mortgages.
- Have at least 100 shareholders.
- Give at least 90 percent of its income as dividends.
Dividends Make REITs Attractive to Black Investors
Black Americans are often locked out of investments like real estate. Investing in REITs could help Black investors own a piece of real estate and stocks at the same time.
REITs don’t pay corporate taxes and give high dividend payouts. Those factors could make the trusts a stable form of passive income. Here are possible REITs for Black investors
RLJ Lodging is a Black-owned REIT that buys hotels. BET founder Robert L. Johnson owns the company. The REIT has a market cap of $2.43 billion and may grow with its latest acquisition. RLJ Lodging just announced it has secured an option to extend by one year the maturity date of $225 million of its $319 million loans. That loan extension lets the company add more hotels to its portfolio. That news comes after the acquisition of Hampton Inn and Suites Atlanta Midtown for $58 million.
“With over $1.0B of liquidity and a flexible balance sheet, RLJ is well-positioned to pursue its growth plan,” RLJ Lodging CEO Leslie D. Hale told Seeking Alpha.
With high liquidity and new hotel acquisitions, RLJ Lodging is a REIT that Black investors can add to their portfolios, according to Zack’s Equity Research.
2. American Tower
American Tower is a cellphone REIT that leases space to cellphone companies for their towers. As many African-Americans are familiar with cellphone technology, Black investors could see American Tower as a worthwhile investment. In its second-quarter 2021 report, the company had revenue of $2 billion.
“In addition to delivering double-digit growth in AFFO per Share and 15 percent dividend growth, we added nearly 27,000 sites through our Telxius Towers acquisition in the quarter, augmenting American Tower’s position as a leading independent provider of communications real estate in Europe,” said CEO Tom Bartlett wrote in the company’s last earnings report.
3. STAG Industrial
STAG Industrial owns 50 warehouses across the U.S. STAG Warehouse reported $33 million in its last earnings report and grew as more e-commerce companies use their warehouses.
“The second quarter demonstrated the strength of the STAG platform. The increasing demand for space in our portfolio combined with our strong external growth has resulted in upward revisions to our outlook for the remainder of 2021,” said CEO Ben Butcher in the company’s Q2 2021 earnings report.
STAG Industrial could be a top REIT for Black investors that want to invest in warehouse REITs that are part of the e-commerce warehouse boom.
4. VICI Properties
VICI is a REIT that has gaming, leisure, and hospitality properties. With the country reopening, many people again began flocking to gaming havens like Las Vegas Sands and establishments like the Hard Rock Cafe. The REIT’s revenue jumped 46 percent to $376 million in Q2 2021.
“Our stellar second-quarter 2021 financial results, supported by revenue growth of 45.9 percent year-over-year, highlight the value we’ve created on behalf of shareholders by growing our portfolio accretive and partnering with best-in-class tenants,” said CEO Edward Pitoniak in VICI’s Q2 2021 earnings report.
5. Annaly Capital Management
Annaly Capital Management is a top mortgage REIT. The REIT buys mortgage-backed securities and receives income from the investment’s interests. It recently reported revenue of $856 million amid a strong housing market.
Annaly CEO David Finkelstein noted in the company’s latest earnings report that the company increased liquidity and the dividend yield to 10 percent.
“We proactively reduced leverage and the size of our portfolio while increasing liquidity to preserve capital for more attractive investment opportunities throughout the balance of the year. Despite the more conservative posturing, we generated robust earnings for the quarter well in excess of our dividend,” said Finkelstein.
Black investors looking for a high dividend yield could be interested in Annaly Capital Management.
REITs can be a beneficial investment for Black investors that want to diversify their portfolios beyond regular stocks and learn more about the world of real estate.