I don’t mean to harp on the same subject three days in a row. But I’m telling you…
Business is booming in the Sun Belt. It seems like I’m uncovering new opportunities there every other week.
That’s why I named three strong regional bank plays on Monday that are doing quite well for themselves due to their Southern presence. And on Tuesday, I detailed Equity Lifestyle Properties (ELS), a manufactured housing real estate investment trust (“REIT”) with a heavy portfolio concentration in Florida.
But the list of businesses benefitting from this excess sunshine goes far beyond that.
I wouldn’t call investing in the South a “fish in a barrel” shooting expedition. Nothing worthwhile is ever that easy. So you always want to be careful about what you buy, when you buy it, and how.
Always.
With that said, economic opportunities have become much more concentrated over the past decade or so as capital, corporations, jobs, and people keep migrating away from traditional centers of business power.
New York, Chicago, Boston, Los Angeles – they just don’t have the economic shine they used to.
Instead, places like Miami and Dallas are becoming dynamic money-making hubs that are hard to resist. And as a natural result, they’re becoming real estate powerhouses, making corporate landlords a tidy sum as well.
Really, the Sun Belt is becoming a REIT’s playground.
The Big Picture Down South Is Beautiful
You’ve probably heard by now about how Big Tech is embracing the Southern states it once scorned. The short list of big-money activity includes:
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Samsung spending $40 billion on semiconductor manufacturing in Texas
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Elon Musk’s xAI investing more than $20 billion to build an artificial intelligence (“AI”) training system in Mississippi
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Apple (AAPL) building a 250,000 square-foot server factory in Houston, Texas, for its Apple Intelligence AI programs and another campus a few hours away in Austin
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Google (GOOG) building or planning to build at least eight large data centers in Sun Belt states like Texas and South Carolina
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Microsoft (MSFT) building at least 13 more
I already mentioned regional banks, but much larger financial institutions are putting billions of dollars into the Sun Belt, too.
So are automakers like BMW, Ford Motors (F), Nissan, and Toyota Motors (TM). And so are clean energy companies, utilities, and pharmaceuticals. Meanwhile, the Southeast specifically – from North Carolina on down to Georgia, along with Alabama and Tennessee – is becoming known as the “battery belt.”
The Center for Climate and Energy Solutions explains:
The growing [electric vehicle] and battery manufacturing sector in the Southeast is beginning to scale in ways that could support the development of a multi-billion-dollar regional industry cluster. Final assembly for batteries has attracted companies producing components like cells and modules, as well as recycling companies that can process manufacturing scrap and end-of-life products.
Further up the supply chain, mining and refining or production of critical anode and cathode materials ties the end-to-end supply chain together.
To support such ventures, university programs are expanding their research programs, workplaces are seeking out more training, and local and state governments are investing in transportation and energy infrastructure.
In short, the growth that has happened, is happening, and is scheduled to happen in the Sun Belt is enormous. And as this trend progresses, more real estate will become necessary.
Companies need office space to operate out of, after all. And their employees need homes to live in and access to grocery stores, pharmacies, clothing stores, doctors’ offices, and medical facilities.
Restaurants, hotels, and self-storage space also have excellent opportunities down South, opening the door for an impressive amount of REIT growth in return.
Investing in Red State REITs
This is a topic I’m very familiar with after helping create a new exchange-traded fund (“ETF”) index last year – one focused on REITs that own properties in so-called “red states.”
It’s called the MarketVectorTM – iREIT® Red State REITs Index. And it’s what the new Truth Social American Red State REITs ETF (TSRS) seeks to correspond to before fees and expenses.
To quote the prospectus, this index “is designed to track the performance of” REITs “that earn the majority of their revenues or income from U.S. states that voted for a Republican presidential candidate in two of the last three elections.”
It relies in part on a research terminal my team and I helped build that screens for most U.S. equity REIT sectors with a market cap over $150 million. The resulting list is then culled further by considering factors like:
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Dividend growth
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Funds from operations (“FFO”)
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Net debt
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Interest coverage ratio
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Debt to asset ratio
Only the highest-quality REITs we find make the final cut.
Right now, TSRS’s top six constituents are Broadstone Net Lease (BNL), NNN REIT (NNN), VICI Properties (VICI), Realty Income (O), Four Corners Property Trust (FCPT), and NetStreit (NTST). They are all net-lease plays and own free-standing properties leased to reliable retailers under long-term contracts.
You can see my recent article on casino-owner VICI in particular here.
Lamar Outdoor (LAMR) is another top 10 TSRS holding and another company I covered recently. Warren Buffett’s Berkshire Hathaway (BRK.A) (BRK.B) disclosed an investment into that REIT earlier this year – a topic I had to address.
Then there’s Sila Realty (SILA), a health care landlord that recently announced it was merging with Blue Owl Capital (OWL). The stock popped more than 19% on the news.
And both the index and ETF also cover sectors like farming, manufactured housing, apartments, and industrials. Every single one has multiple reasons to thrive down South, and many are taking those reasons and running with them.
Follow the Sunshine
Despite how it might sound, this pursuit of red-state REITs isn’t about politics. It’s about following unbiased data where it logically leads.
Before 2020, I was more than happy to recommend REITs embedded in deep-blue states like New York. But this decade has made it clear how unsustainable most of that business is.
I’m not willing to risk my money or yours trying to play nice rather than be honest. Nor can I ignore such enormous profit potential down South when it keeps rolling in year after year after year.
The Sun Belt’s ongoing success story isn’t a blip. It’s a secular trend fueled by corporate investments and demographic shifts that aren’t going away anytime soon.
In which case, neither are the REITs literally housing that growth.
Disclosure: I helped build The MarketVectorTM – iREIT® Red State REITs Index, and I own shares in TSRS.
Regards,
Brad Thomas
Editor, Wide Moat Daily
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