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Easterly Government Properties

Easterly Government Properties (DEA) is not the largest REIT on the market, but it stands out among its peers for a very simple reason: The company’s mission is to acquire, develop and manage commercial properties leased to the U.S. government.

As of Sept. 30, 2022, Easterly’s top three tenants were the Department of Veteran Affairs, the FBI and the Drug Enforcement Administration. They contribute 23.8%, 16.5% and 8.5% to the REIT’s annualized lease income, respectively.

In fact, the REIT said 98% of its lease income is “backed by full faith and credit of the U.S. government” in the latest investor presentation. Few tenants are more reliable.

At the end of Q3, Easterly’s portfolio consisted of 86 properties totaling 8.7 million square feet. They were 99.3% leased, with a weighted average remaining lease term of 10.5 years.

In July of 2021, the company raised its quarterly dividend payout to 26.5 cents per share. At the current share price, that translates to an annual yield of 6.9%.

While Easterly might seem like an obvious choice, given the caliber of its tenants, the stock is actually down 25% over the past 12 months — not particularly impressive considering that the S&P 500 tumbled just 5% during the same period.

And that could give contrarian investors something to think about.

While Easterly has received an average rating of “hold” from Wall Street analysts, their average price target of $17.25 is 12% higher than where the stock sits today.

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Office Properties Income Trust

As the name suggests, Office Properties Income Trust (OPI) owns a lot of office buildings — its portfolio consists of 162 properties totaling 21.2 million square feet.

While real estate prices in the U.S. have been resilient during this high-inflation period, OPI hasn’t gotten much investor attention.

Over the past 12 months, OPI shares have tumbled 31%.

But there is something that makes the company stand out: it has a quarterly dividend rate of 55 cents per share and an annual yield of 12.9%.

To put that in perspective, the average S&P 500 company yields just 1.7% at the moment.

Unlike Easterly, OPI is not a pure-play government landlord. But the U.S. government is the REIT’s biggest tenant, contributing 19.1% to its annualized rental income.

Its other top tenants include big names like Google parent company Alphabet, the State of California and Bank of America.

The company says it earns 63% of its revenue from investment grade tenants — that is, tenants who pose a low risk of default.

In Q4 of 2022, the REIT leased 705,000 square feet of space for a weighted average lease term of 10.1 years.

Just like Easterly, OPI has received an average rating of Hold from analysts but the best could be yet to come: the average price target on OPI is $19 — roughly 11% above the current levels.

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Jing Pan Investment Reporter

Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.

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