When I first starting investing I was highly intrigued by companies like American Capital Agency Corp. (NASDAQ:AGNC) or Annaly Capital Management, Inc. (NYSE:NLY). I saw companies trading less than 15 times earnings with dividend yields above 10%. How did companies like this exist? Why wasn’t everyone buying these companies?
A little more research revealed that these companies were mortgage Real Estate Investment Trusts (mREITS) and that they made their money through government agency backed mortgages. At the time it made sense so I went for it, grabbing up a decent chunk of American Capital Agency Corp. (NASDAQ:AGNC).
Over the course of a few months I saw more and more articles being written about interest rate spreads and how these were really the crux of how these mREIT were making money. I tried to dive into more detail and after a few research sessions I gave up. This stuff was complicated. I decided that I knew nothing about how these things worked so I dumped my shares.
After this occurrence, I avoided the REITs for some time. Recently companies in this industry have been subject to tremendous sell offs. With prices being driven down, yields are being driven up. I am a sucker for great dividend yields. I decided to do some more research on this industry and discovered three REITs that operate much simpler businesses than their mREIT half brothers.
The three companies I really like are Government Properties Income Trust (NYSE:GOV), Omega Healthcare Investors Inc (NYSE:OHI) and Health Care REIT, Inc. (NYSE:HCN)
Government agencies make great tenants
Government Properties Income Trust (NYSE:GOV) owns approximately $1.7 billion of office buildings that are leased mainly to government tenants. The company has a forward Price/Earnings (P/E) ratio of just 10.90 and a dividend yield of 7%.
Government Properties Income Trust (NYSE:GOV) grew revenue over 15% from the same quarter one year ago, outpacing the industry average of 12.1%. This revenue growth has flown through to the bottom line as the company reported net income growth of over 89%.
Government Income Properties also operates a tremendously lean business with a gross margin of 35.90% and a profit margin of 42.80%. The company currently has an occupancy rate of 92.8% and a weighted average remaining lease term of 5.4 years. Government Properties Income Trust (NYSE:GOV) also has a $550 million credit facility it is looking to put to work to finance the acquisition of additional properties.