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Specialty REITs Outperform Expectations First Half Of 2016

Susan Persin

Specialty REITs are called "special" for a reason. They don't deal in office space, retail properties and industrial the way traditional trusts do. Somewhat of the odd man out in the REITs-sphere, they don’t fit into any one category.

Specialty REITs operate in businesses that include farmland, privately held prisons, even charter schools and casinos.

“Specialized REITs broke out more this year, and it's kind of hard to get a handle on it because it includes so many different categories,” Trepp Talk senior director of research Susan Persin (pictured) tells Bisnow. “It's roughly prison REITs, outdoor advertising, farmland and entertainment. It’s a catch-all category that has a bunch of REITs that don't really fit anywhere else.”

As reported by the National Association of Real Estate Investment Trusts, specialty REITs were among the top-performing real estate trusts in the first half of the year—falling slightly behind data center and free-standing retail REITs.

The sector made 31.44% in returns and boasts a 5.45% dividend yield, Susan says. As the economy strengthens and real estate fundamentals remain healthy, these REITs will continue to thrive.

Prisons

Susan says the success of specialty REITs is less contingent on the state of commercial real estate, and more on the state of the industry its business falls in.

“Because of their specialized nature, specialty REITs don't necessarily perform in conjunction with real estate overall. They’re more closely correlated with the businesses they’re related to,” she says. “If outdoor advertising is doing well, they’re less dependent on real estate fundamentals for their performances. That's why they’re specialized. They’re not a traditional REIT where you look at office vacancy rates and you say 'this is how this will affect how office performs.'”  

In her blog post on Trepp Talk, Susan discusses the top specialty REITs and how they’ve fared so far this year. Iron Mountain, the largest REIT in the sector with a $9.7B market cap that focuses on managerial information and document storage, had a 50% leap in stock price this year.               

MGM Growth Properties has increased in stock price following a wave of funding that raised $1.05B in April. The REIT is now priced at $23/share.

EPR Properties is a more diversified REIT with properties all across the board in education, recreation and entertainment—its stock price increased by 50% in the first half of this year as well.

“The US economy is performing well and real estate fundamentals as a whole are pretty strong,” Susan says.