This article is republished with permission from REITCafe.

What do billboards, prisons, casinos, schools, farmland, and document storage have in common? Real estate investment trusts (REITs) in these disparate businesses comprise NAREIT’s specialty REIT category, one of the best-performing sectors this year. The sector has recorded a year-to-date total return of 31.44 percent and boasts the strongest dividend yield among the equity REITs, 5.45 percent.

Specialty REITs benefit more from factors that affect specific businesses than from traditional real estate market supply-and-demand fundamentals. The growing economy and population are fueling demand for everything from entertainment to prisons. Within the specialty REIT sector, some businesses are performing better than others, but on the whole, specialty REITs have strong dividend yields, and most have reported robust price appreciation this year.

TREPP-i Survey Loan Spreads (50–59% LTV)* 
This Week  Previous Week  Previous Month  End 2015 End 2014
Industrial  167 175 168 163 138.5
Multifamily  167 172 168 168 139.8
Office  178 187 179 168 148
Retail  168 177 168 168 139.8
Average Spread  170.00 177.75 170.75 166.75 141.5
10-year Treasury Yield**  1.59 1.37 1.58 2.27 2.17

Iron Mountain is the largest specialty REIT, with a market cap of $9.7 billion, representing 27 percent of the sector. Its strong performance this year is responsible for much of the sector’s growth. Iron Mountain focuses on document storage and information management. First-quarter funds from operations (FFO) beat estimates, and the company’s stock price has gained 50 percent so far this year. A number of factors are driving growth, including international expansion and diversification into data centers.

Gaming and entertainment venues have been expanding. With the healthy economy, people are spending more on entertainment, and June’s job report showed 27,200 new jobs in arts, entertainment, and recreation. Among the results in this sector:

  • The stock of Gaming and Leisure Properties, the second-largest specialty REIT, has risen significantly this year, although its price remains well below its 2014 recent peak. In late April, the company completed the previously announced purchase of 14 casinos from Pinnacle Entertainment.
  • MGM Growth Properties, spun off by MGM Resorts, raised $1.05 billion in April. Originally priced at $21, the stock currently trades above $26, an increase of about 25 percent.
  • EPR Properties also ranks among the largest specialty REITs. The company owns a portfolio of entertainment, education, and recreation properties. Its stock price has gained almost 40 percent this year.
  • Several additional gaming REITs could debut soon. Caesar’s Entertainment has proposed a REIT as part of its reorganization, but lawmakers are fighting the company’s plan. Boyd Gaming is also considering a REIT spinoff.

Prison REIT stock prices are up more than 20 percent this year in spite of worries that sentencing reform and immigration policy could affect Corrections Corporation of America and GEO Group. Because their primary tenants are usually the federal government or state governments, these REITs are at the mercy of budget cycles and politics. On the other hand, the federal and state governments have high-quality credit.

Long-term projections indicate that inmate populations will expand in spite of reforms. At the same time, existing prison stock has aged, and government officials have little appetite for investing in development or redevelopment. The REITs have also diversified by expanding the types of facilities they operate to include federal immigration detention facilities.

Two billboard REITs have posted solid performance in 2016. Stock values for both Lamar Advertising and Outfront Media are up 10 to 12 percent so far this year. Both companies beat first-quarter earnings estimates, though revenues were down for Outfront’s international segment. Out-of-home advertising revenue gained 3.3 percent to $1.64 billion between the first quarters of 2015 and 2016, according to the Outdoor Advertising Association of America.

Large owners are expanding through acquisitions as the industry consolidates. The movement toward highly flexible digital billboards, which provide the ability to rotate ads among multiple advertisers, is helping drive outdoor advertising revenue growth. Regulations that limit new billboards make existing signs more valuable, but stricter industry regulation and the movement to ban outdoor advertising are concerns.

Growth among the three small land REITs included in the specialized REIT sector has been mixed, although all have maintained a 4.0 percent–plus dividend yield.

Fueled by healthy economy and population growth, document storage, entertainment, and prisons are driving 2016 returns in the specialty REIT sector.


* TREPP-i Survey Loan Spreads levels are based on a survey of balance sheet lenders. For more information, visit 

** – 10 yr. Treasury Yield as of 7/15/2016.