These are the safest and highest dividend-yielding REITs as the coronavirus spreads, BofA says

Given REITs’ higher yields, they often act as a bond proxy, meaning equity investors can use REITs to track a rise in bond prices and a drop in interest rates.

Being defensive doesn’t mean REIT stocks aren’t expected to fall, but rather that it can act as a harness as they should fall less than the broader stock market. The SPDR Real Estate Select Sector exchange-traded fund XLRE, -4.21% has declined 2.1% over the past three months through Friday afternoon, while the S&P 500 index SPX, -3.49% has dropped 6.8%. The REIT ETF’s dividend yield is 3.13%, while the implied yield for the S&P 500 is 2.08%, according to FactSet, and the yield on the 10-year Treasury note TMUBMUSD10Y, 0.730% is 0.773%. See Bond Report and Market Snapshot.

Although REITs aren’t immune to weakness in the economy, especially if it leads to drop in real-estate values and demand for leases, which would then impact dividend payouts, BofA Securities analysts identified some types of real-estate assets that would be the least hurt in an economic downturn brought on by the spread of COVID-19:

Datacenters — “There is no evidence of correlation between GDP growth and data center leasing activity,” BofA analysts wrote. “Data centers are necessary for corporate internet continuity. COVID-19 could drive greater use of internet shopping and over-the-top video.”

Grocery-anchored strip centers — “Grocery visits will remain essential and goods are mainly, or can be sourced, domestically so limited supply-chain risk,” analysts wrote. “Side tenants provide services for the local community that are likely to remain in demand.”

Medical office buildings, hospital and life science — “Operators would benefit from increased patient visits,” the analysts wrote.

Self storage — “No direct impact on property type usage,” analysts wrote. “Often considered a risk-off sector due to consistent tenant demand but will watch vacancy risk of corporate users.”

Towers (for wireless carriers) — “Defensive with long-term lease contracts and no human interaction at sites,” BofA wrote. “We expect wireless carriers to maintain their [capital expenditures] with mobile data demand usage growing 30%-40% per year.”

With that in mind, here is BofA’s list of the most-defensive, highest yielding REITs the firm covers. All the stocks are rated buy:

Company Ticker REIT sector Dividend yield
Brixmor Property Group Inc. BRX, -2.42% Grocery-anchored strips 6.34%
Regency Centers Corp. REG, -4.47% Grocery-anchored strips 4.02%
Digital Realty Trust Inc. DLR, -3.55% Datacenters 3.57%
Extra Space Storage Inc. EXR, -2.55% Self storage 3.34%
Federal Realty Investment Trust FRT, -1.91% Grocery-anchored strips 3.53%
CyrusOne Inc. CONE, -3.77% Datacenters 3.37%
Crown Castle International Corp. CCI, -3.21% Towers 3.04%
QTS Realty Trust Inc. QTS, -5.13% Datacenters 3.38%
Alexandria Real Estate Equities Inc. ARE, -2.49% Life Science 2.62%
American Tower Corp. AMT, -3.11% Towers 1.58%
Equinix Inc. EQIX, -4.84% Datacenters 1.80%
BofA Securities, FactSet

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