Real Estate Investment Trust – Know the FFO

REIT News and Ideas for Easy Income: ADC, EPR, MPW, and NNN

One way to gain income is buy owning REIT investments. “REIT” is the abbreviation for Real Estate Investment Trust.” One key factor to know about a REIT (pronounced “rate”) is that the FFO (Funds From Operations) should always be greater than the dividend payout. So, for example, EPR has a FFO of $4.88. That means these incoming dollars are available to be paid to investors. (You really don’t want a company to borrow money to pay a dividend.) EPR also has a “Div Rate (FWD)” of $3.42. In other words, the FFO exceeds the Dividend Rate. This provides a measure of safety if there are no huge fundamental problems with EPR.

Source: Seeking Alpha Summary

Remember Covid? When Covid struck, then REITs that focused on the hospitality and entertainment sectors plunged. In addition, as interest rates increased, more investors became hesitant to purchase dividend investments, including REITs. Therefore, REITs have risks like all other investments, but they are especially vulnerable if they focus on something that depends on discretionary consumer spending.

But there is another important consideration, and that is how long you are willing to be patient. Warren Buffett has often said, “The market is a voting machine in the short term and a weighing machine in the long term.” I don’t care that much about trader’s votes. I’m more interested in how investors weigh an investment. Sometimes they are parallel, but many times the voters get it wrong. This is especially true of REITs.

Looking at Some REITs

Recently one of my readers asked for my views about some REITs. Two of them, ADC, and EPR are worthy of mention. I want to consider four: ADC, EPR, MPW, and NNN. Each of these rates has a slightly different focus. Cindie and I own shares of ADC, MPW, and NNN.

ADC is a retail REIT. Agree Realty Corporation is a publicly traded real estate investment trust that acquires and develops properties net leased to industry-leading, omni-channel retail tenants. As of December 31, 2023, the Company owned and operated a portfolio of 2,135 properties, located in 49 states and containing approximately 44.2 million square feet of gross leasable area. ADC pays their dividend monthly.

Source: Seeking Alpha Summary

EPR is a diversified experiential net lease real estate investment trust (REIT), specializing in select enduring experiential properties in the real estate industry. They focus on real estate venues that create value by facilitating out of home leisure and recreation experiences where consumers choose to spend their discretionary dollars. EPR Properties raised their dividend by 3.6% to $0.285 this week. One other point: This REIT pays a monthly dividend.

MPW is a health care focused REIT. Medical Properties Trust, Inc. was formed in 2003 to acquire and develop net-leased hospital facilities. From its inception in Birmingham, Alabama, the Company has grown to become one of the world’s largest owners of hospital real estate with 441 facilities and approximately 44,000 licensed beds as of September 30, 2023.

NNN is another retail space REIT. NNN REIT invests primarily in high-quality retail properties subject generally to long-term, net leases. As of December 31, 2023, the company owned 3,532 properties in 49 states with a gross leasable area of approximately 36.0 million square feet and a weighted average remaining lease term of 10.1 years. NNN is one of only three publicly traded REITs to have increased annual dividends for 34 or more consecutive years.

I own shares of ADC, and I have no intention of selling them. The current price for ADC is less than I paid, so I will probably buy more shares.

EPR News

I don’t currently own EPR shares, but I think it is a good REIT when the economy is strong. I also like the recent dividend increase. Remember the concept of FFO?  It is important that FFO is greater than the FWD Dividend Rate. So, for example, EPR has a FFO of $4.07 and a dividend of $3.00. This is a very good ratio of FFO to payments.

MPW News

It is no secret that I have been disappointed in MPW’s performance. However, I still think there is hope, so I have not sold our shares. Recent news seems to confirm that holding on tight is still a good long-term strategy.

NNN News

NNN declared the next quarterly dividend. The quality of this investment is one of the reasons I hold shares. In fact, yesterday I added another 100 shares to my traditional IRA. This brings my total traditional IRA investment to 800 shares. I also have 500 shares of NNN in my ROTH IRA. The total income from this investment is $2,938 per year.

Cautions

Don’t purchase shares of any REIT, or any other investment without a strategy. For the most part, it is best to hold shares of REITs in IRA or ROTH IRA accounts. This is due to the income tax liability in taxable accounts. “REIT dividends typically don’t qualify for the favorable tax treatment most stock dividends do. And their dividends can be rather complex. Specifically, there are three main types of distributions REITs make — ordinary income, long-term capital gains, and return of capital — and each one has a different tax treatment.” – https://www.fool.com/the-ascent/taxes/reit-taxation-basics/

Full Disclosure

Cindie and I own 600 shares of ADC as a long-term investment. Cindie and I own 4,600 shares of MPW.