Insights

These 2 Value REITs Could Very Well Be Millionaire Makers

Investing is not an easy thing. It requires nerves of steel and a willingness to go against the crowd. But if you can stomach the uncertainty required to buy when others are fearful, you can easily join the millionaire’s club.
Two real estate investment trusts (REITs) that are currently worth a close look for intrepid investors are Omega Healthcare (NYSE: OHI) and Iron Mountain (NYSE: IRM).
1. Omega Healthcare: We’re going to need these beds
Omega Healthcare is a healthcare REIT with a specific focus on owning nursing homes. Since the pandemic started in 2020, senior housing has been a pretty terrible property type to own, with nursing homes among the worst hit. 
Image source: Getty Images.

The logic here is pretty simple: The coronavirus is generally most harmful to older adults, and it spreads easily in group settings. That perfectly describes a nursing home. Omega is dealing with weak occupancy levels and has a raft of tenants that are having trouble paying their rent.
It is not good right now, and investors have pushed the stock price down and dividend yield up over 10%. There is a very real risk that the dividend gets cut, though even if it were halved, the yield would still be far more generous than the S&P 500 index’s 1.3% or so and the average REIT’s 2.2%, using Vanguard Real Estate Index ETF as a proxy. 
Meanwhile, it’s important to remember that most people go into a nursing home not by choice, but because they need the level of care provided in these facilities. And with the baby boomer generation cresting into retirement, the number of people needing nursing homes is set to rise.
While the pandemic is still a headwind, there are signs that things are getting better, and now could be a good time to jump aboard Omega for more aggressive types looking for high income and the potential for capital appreciation in this turnaround play. 
2. Iron Mountain: An expensive transition
Iron Mountain’s historical business approach can be summed up pretty easily: It provided long-term storage for boxes and boxes of paper. This is a highly reliable business, given that legal and financial rules require companies to keep important paper records for a very long time. Not wanting to house those documents themselves, companies simply called up Iron Mountain to cart all the paper away. The company’s physical storage business serves 95% of the Fortune 1000 and has a 98% customer retention rate. As noted, it is very reliable.
The problem is that paper documents are going the way of the dodo as the world goes digital. This is why Iron Mountain is building out a network of data storage facilities, leveraging its strong reputation and impressive customer list to change with the times. It is, without question, the right business direction for the REIT, as it uses its cash-cow legacy operation to help support the transition. 
The problem is that building data centers is expensive, and Iron Mountain’s debt load is material compared to other leading data center owners. Leverage reduces a company’s flexibility to deal with adversity, which helps explain why Iron Mountain’s yield is 4.6%, well more than a percentage point higher than other pure-play data center REITs.
For conservative investors, the leverage issue is a good reason to stay away. But for more aggressive types, focused more on the long-term business direction here, Iron Mountain could be a good addition as it transitions into the growing digital storage niche. If successful, the REIT’s valuation will likely rise to match other data center players.
Not for everyone
Investors who want to play it safe probably should not own either Omega or Iron Mountain. They have fat yields for a reason. However, if you can handle uncertainty and are looking for long-term investments, both have attractive features, notably including relatively high yields.
Omega is a turnaround story and Iron Mountain a business transition tale. Both could help you reach a seven-figure net worth — if you can handle the ride.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Iron Mountain and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy. –

Investing is not an easy thing. It requires nerves of steel and a willingness to go against the crowd. But if you can stomach the uncertainty required to buy when others are fearful, you can easily join the millionaire’s club.

Two real estate investment trusts (REITs) that are currently worth a close look for intrepid investors are Omega Healthcare (NYSE: OHI) and Iron Mountain (NYSE: IRM).

1. Omega Healthcare: We’re going to need these beds

Omega Healthcare is a healthcare REIT with a specific focus on owning nursing homes. Since the pandemic started in 2020, senior housing has been a pretty terrible property type to own, with nursing homes among the worst hit. 

Image source: Getty Images.

The logic here is pretty simple: The coronavirus is generally most harmful to older adults, and it spreads easily in group settings. That perfectly describes a nursing home. Omega is dealing with weak occupancy levels and has a raft of tenants that are having trouble paying their rent.

It is not good right now, and investors have pushed the stock price down and dividend yield up over 10%. There is a very real risk that the dividend gets cut, though even if it were halved, the yield would still be far more generous than the S&P 500 index’s 1.3% or so and the average REIT’s 2.2%, using Vanguard Real Estate Index ETF as a proxy. 

Meanwhile, it’s important to remember that most people go into a nursing home not by choice, but because they need the level of care provided in these facilities. And with the baby boomer generation cresting into retirement, the number of people needing nursing homes is set to rise.

While the pandemic is still a headwind, there are signs that things are getting better, and now could be a good time to jump aboard Omega for more aggressive types looking for high income and the potential for capital appreciation in this turnaround play. 

2. Iron Mountain: An expensive transition

Iron Mountain’s historical business approach can be summed up pretty easily: It provided long-term storage for boxes and boxes of paper. This is a highly reliable business, given that legal and financial rules require companies to keep important paper records for a very long time. Not wanting to house those documents themselves, companies simply called up Iron Mountain to cart all the paper away. The company’s physical storage business serves 95% of the Fortune 1000 and has a 98% customer retention rate. As noted, it is very reliable.

The problem is that paper documents are going the way of the dodo as the world goes digital. This is why Iron Mountain is building out a network of data storage facilities, leveraging its strong reputation and impressive customer list to change with the times. It is, without question, the right business direction for the REIT, as it uses its cash-cow legacy operation to help support the transition. 

The problem is that building data centers is expensive, and Iron Mountain’s debt load is material compared to other leading data center owners. Leverage reduces a company’s flexibility to deal with adversity, which helps explain why Iron Mountain’s yield is 4.6%, well more than a percentage point higher than other pure-play data center REITs.

For conservative investors, the leverage issue is a good reason to stay away. But for more aggressive types, focused more on the long-term business direction here, Iron Mountain could be a good addition as it transitions into the growing digital storage niche. If successful, the REIT’s valuation will likely rise to match other data center players.

Not for everyone

Investors who want to play it safe probably should not own either Omega or Iron Mountain. They have fat yields for a reason. However, if you can handle uncertainty and are looking for long-term investments, both have attractive features, notably including relatively high yields.

Omega is a turnaround story and Iron Mountain a business transition tale. Both could help you reach a seven-figure net worth — if you can handle the ride.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Iron Mountain and Vanguard Real Estate ETF. The Motley Fool has a disclosure policy.

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