In this low-interest-rate environment, many investors find REITs attractive due to their combination of capital appreciation potential and their meaningful dividend yields (in most instances).
Given that REITs can hit the sweet spot for many investors, Insider Monkey has put together a list of the smart money’s favorite REIT stocks. Without further ado, let’s take a closer look at how American Tower Corp (NYSE:AMT), Crown Castle International Corp (NYSE:CCI), Equinix Inc (NASDAQ:EQIX), Gaming and Leisure Properties Inc (NASDAQ:GLPI), and CyrusOne Inc (NASDAQ:CONE) are being traded among successful hedge funds.
We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).
#5 CyrusOne Inc (NASDAQ:CONE)
– Number of Hedge Fund Shareholders (as of June 30): 35
– Total Value of Hedge Funds’ Holdings (as of June 30): $477.46 million
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 10.80%
Hedge funds were pretty bullish on CyrusOne Inc in the second quarter, an REIT that owns, operates, and develops data center properties. The number of funds in our database with holdings in CyrusOne Inc (NASDAQ:CONE) rose by seven quarter-over-quarter to 35 at the end of June, out of 749 funds which filed 13Fs for the latest reporting period. The REIT’s shares have performed very well in 2016, rising by 34.35% year-to-date as investors buy for the stock’s strong growth prospects in the future (data centers are experiencing secular growth), and for the stock’s annual dividend of $1.52 per share, good for a 3.07% yield. Analysts have an average price target of slightly over $60 per share on the stock, $10.51 above its current price.
#4 Gaming and Leisure Properties Inc (NASDAQ:GLPI)
– Number of Hedge Fund Shareholders (as of June 30): 40
– Total Value of Hedge Funds’ Holdings (as of June 30): $1.01 billion
– Hedge Funds’ Holdings as Percent of Float (as of June 30): 20.00%
Many investors view Gaming and Leisure Properties’ income from its facilities as very stable. Not only do the facility leases run for 35 years, but Gaming and Leisure’s primary tenants, Penn National and Pinnacle Entertainment, don’t have much credit risk. In 2015, Penn National and Pinnacle Entertainment had EBITDA-to-rent ratios of 1.77 and 1.68 respectively. Given that the U.S. economy has strengthened since 2015, their ability to pay their rent has arguably become even more solid. The increased strength of Gaming and Leisure’s customers makes the company’s annual dividend of $2.40 per share, good for a 7.27% yield, even more attractive. 40 funds that we track owned shares of Gaming and Leisure Properties Inc (NASDAQ:GLPI) as of the most recent 13F reporting period, down by 19 funds quarter-over-quarter.
We’ll check out hedge funds’ three favorite REITs on the next page.