There was some recent REIT sector activity within my Portfolio.  So, it’s time to share the news and let you know what happened.

Earlier this week I executed a pair of transactions.  I sold out of one REIT, then used nearly all the proceeds to establish a new REIT position.

The yields of the two companies were very similar, so there was not much of a change in forward dividend income either.

Let’s take a gander at the details…

 

Iron Mountain (IRM)

I decided to sell my entire IRM position.  Why?  A few reasons…

First, selling now would allow me to cash out at what looks to be a favorable price.  I initiated my position in IRM a little over 2 years ago.  Once I made the initial investment, I didn’t add to my position, but I did reinvest the dividends.  The stock price didn’t move much in either direction until the pandemic hit, then it dropped rather significantly.  At the start of 2021 though, the stock began to run up.  It climbed tremendously… to the point of it now looking overvalued to me.

Second, I’ve made a point of focusing on dividend safety within my Portfolio recently.  When IRM produced a ‘Borderline’ Dividend Safety Score of 50 from Simply Safe Dividends, that gave IRM a bottom-5 score in my Portfolio.

Third, IRM did not raise its dividend last last year, which will lead to 0% dividend growth in 2021.  I could give IRM a pass for missing that raise due to the impact of the pandemic on its business, but that wouldn’t explain the precipitous drop in its dividend growth rate over the previous 3 years.  When I established my position in mid-2019, I was certainly expecting better dividend growth than what I’ve received.  It’s possible IRM announces a dividend raise in late Oct. or early Nov., but I suspect it will be a small one even if it does happen.

So, given the current valuation, my desire to remove a poor dividend safety score from my Portfolio, and waning dividend growth, I decided to exit my IRM position and seek out a replacement REIT candidate.

On 9/14/21, I sold all 59.938 shares at $46.21/sh.  After the SEC fee, the sale proceeds were $2,769.72.

At my sale price, shares of IRM yielded 5.35%, which is 3 percentage points better than my current average Portfolio yield of 2.33%.

The sale resulted in a long-term capital gain of $876.09, and a short-term capital gain of $57.26.  The sale also resulted in a $148.29 reduction in annual forward dividend income.

I sold IRM on its ex-dividend date, thus I’ll be securing one last dividend payment in October.

Thanks to the price run-up of IRM in 2021, I managed to sell with a Compound Annual Growth Rate (CAGR) of 28.84% for the time I held the shares.  I’ll take that!  Too bad I didn’t invest more.  🙂

Here’s a snip of my entire IRM performance, which you will find reminiscent of what I normally put in my Performance Check posts…

 

 

The elimination of IRM from my Portfolio reduced the number of stocks to 53.

 

Medical Properties Trust (MPW)

MPW made its debut on my watchlist last month.  At that time, I spoke of selling IRM and replacing it with National Retail Properties (NNN), while also selling Omega Healthcare Investors (OHI) and replacing it with MPW.  Well, slight change of plans, as it turns out that I sold IRM and replaced it with MPW.  I’ll save the swapping of the remaining two (OHI for NNN) for another time.

Analysts project slightly better near-term FFO growth from IRM compared to MPW, but MPW has delivered better growth since 2005.  Recent dividend growth for MPW is better, as is its S&P credit rating (BB+ vs. BB-) and Dividend Safety Score (70 vs. 50).  The long-term debt to capitalization ratio is better (lower) for MPW as well (55% vs. 87%).

The yields for IRM and MPW are nearly identical, so taking the IRM proceeds and reinvesting it into MPW allowed me to recoup all the lost forward dividend income from the IRM sale.

Since MPW is new to my Portfolio, let’s cover a little background on the company.

MPW was formed in 2003 to acquire and develop net-leased hospital facilities.  The company has grown to become one of the world’s largest owners of hospitals with over 430 facilities in 9 countries and across 4 continents.  According to MPW’s website, “MPW is known as world’s leading source of capital for hospitals, experienced in unlocking the value of hospital real estate for growth.”  Furthermore, MPW says it’s “the first and only company of its kind to focus exclusively on hospital facilities in the U.S. and around the world.”

As noted at Yahoo Finance, “MPT’s financing model facilitates acquisitions and re-capitalizations and allows operators of hospitals to unlock the value of their real estate assets to fund facility improvements, technology upgrades and other investments in operations.”  MPW was founded and is headquartered in Birmingham, Alabama.

On 9/14/21, I initiated my MPW position by purchasing 133 shares at $20.74/sh, for a total of $2,758.42.  The stock yielded 5.40% at my purchase price… just a tick higher than the IRM yield.

This purchase added $148.96 to my annual forward dividend income, slightly more than I lost in the IRM sale.  I bought my MPW shares the day prior to their ex-dividend date.  Thus, I will collect my first MPW dividend next month.

The MPW purchase bumped up the number of stocks in my Portfolio to 54 again.  It’s one of only 4 REITs in my Portfolio, along with Realty Income (O), W.P. Carey (WPC) and OHI.

MPW starts as the 4th smallest position in my Portfolio, sandwiched in between two of my other REITs in WPC (just above) and OHI (just below).

 

As I usually do with new holdings, let’s take a quick look at the dividend growth history dating back to 2000.  Well, make it 2004 in this case… when dividends were initiated.

 

 

Dividend growth started strong for MPW (as it usually does with new payers) before stagnating starting in 2008 with the onset of the Financial Crisis, and then getting cut in 2009.

It took until 2014 for the dividend growth to resume.  Since then, dividend growth has been in the 3%-6% range… fairly steady.  This is probably a realistic expectation moving forward.  The dividend raise earlier this year was 3.7%.

MPW’s dividend streak is 8 years and counting once you include the total we’ll have from 2021.

The adjusted FFO payout ratio for MPW is approximately 85%, which is on the low side for medical facility REITs.

 

Summary

I made a pair of Portfolio transactions earlier this week, on 9/14.  I eliminated one REIT position (IRM) and redirected the proceeds to establish a new REIT position (MPW).

I sold nearly 60 IRM shares and purchased 133 MPW shares.

The switch allows for an improvement in my Portfolio’s Dividend Safety Score.

The two transactions resulted in a net withdrawal of $11.30 from my Portfolio.  However, my annual forward dividend income ticked up by a whopping $0.67.  Big moves, huh?

By closing out my IRM position, I locked in a CAGR of nearly 29% for the 2+ years I held the stock.  I recorded a long-term capital gain over $876 and a short-term capital gain over $57.

After eliminating a position, but then establishing a new one, the number of stocks in my Portfolio eventually remained at 54.

 

I made more Portfolio transactions this week as well… so keep an eye out for another ‘Recent Transactions’ post in the next few days.

 

Have you closed out any portfolio positions recently?  If so, what were the deciding factors?  I look forward to your comments!