NEW YORK CITY — They may lack the name recognition enjoyed by Ventas Inc. in the health care sector or General Growth Properties in retail. But among equity real estate investment trusts, the specialty category represents one of the best-performing sectors.
Trepp Inc., an information provider for real estate and banking, notes that REITs in this category have posted a 31.44% total return year to date, and a 5.45% dividend yield, the latter representing the strongest among equity REITs.
Another term for specialty REITs might be “miscellaneous REITs.” Under that general heading are real estate trusts that own farmland, outdoor advertising displays, casinos, document storage facilities and prisons. Although NAREIT does not group data center REITs as part of the “specialty” category, they’re specialized enough that nobody would lump them in with the major food groups such as office and multifamily — and through June 30 they led equity REITs in total returns at 37.82%.
“Specialty REITs benefit more from factors that affect specific businesses than from traditional supply and demand fundamentals of the real estate market,” writes Susan Persin, director of research at Trepp. “The growing economy and population are fueling demand for everything from entertainment to prisons. Within the specialty REIT sector, some businesses are performing better than others. But on the whole, specialty REITs are posting hefty dividend yields and most have reported robust price appreciation this year.”
Take Iron Mountain, for example. The Boston-based information storage provider converted to a REIT in mid-2014, and today IRM is the largest specialty REIT with a market capitalization of $9.7 billion, representing 27% of the sector’s total market cap. Its stock pricing has appreciated 50% year to date, and its first-quarter funds from operations came in ahead of analysts’ projections.