3 REITs I'm Adding to my Watchlist

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“Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” – John D. Rockefeller.

I’ve used the above quote from John D. Rockefeller quite a few times because as an income-seeking investor, I’m always on the lookout for a nice dividend.  Sometimes though you can find that a large future dividend will come in a currently small package.  With some of the largest dividends found in the REIT sector I thought I’d take a look at some REITs with small yields that could grow much larger over time.     

In a recent article I looked at the two biggest regional mall REITs and the related spinoffs of one of them and I really didn’t come away impressed with what I saw.  Other than some boardroom drama between activist investors, there wasn’t too much to interest me on the dividend side of things.  Still I figured their smaller peers were worth the look; here are some key metrics to consider:

<table> <tbody> <tr> <td> <p>Company</p> </td> <td> <p>Square Feet of Leasable Space</p> </td> <td> <p>Number of Properties</p> </td> <td> <p>Sales per square foot</p> </td> <td> <p>Portfolio Occupancy</p> </td> <td> <p>Dividend Yield</p> </td> </tr> <tr> <td> <p>CBL & Associates</p> </td> <td> <p>93.4 million</p> </td> <td> <p>164</p> </td> <td> <p> $341</p> </td> <td> <p>92.30%</p> </td> <td> <p>4.12%</p> </td> </tr> <tr> <td> <p>Developers   Diversified</p> </td> <td> <p>117 million</p> </td> <td> <p>459</p> </td> <td> <p> </p> </td> <td> <p>94.10%</p> </td> <td> <p>3.13%</p> </td> </tr> <tr> <td> <p>Glimcher</p> </td> <td> <p>20 million</p> </td> <td> <p>26</p> </td> <td> <p>$434</p> </td> <td> <p>93.60%</p> </td> <td> <p>3.78%</p> </td> </tr> <tr> <td> <p>Macerich</p> </td> <td> <p>64 million</p> </td> <td> <p>63</p> </td> <td> <p>$513</p> </td> <td> <p> </p> </td> <td> <p>3.84%</p> </td> </tr> <tr> <td> <p>Taubman</p> </td> <td> <p>80 million</p> </td> <td> <p>27</p> </td> <td> <p>$672</p> </td> <td> <p> </p> </td> <td> <p>2.41%</p> </td> </tr> </tbody> </table>

The thing about looking at numbers is they never tell you the whole story.  If I were to look at Developers Diversified (NYSE: DDR), it’s easy to see that they are the largest on the list, but their payout is nothing to write home about.  Most blue chip stocks can beat that with less risk.  Meanwhile CBL & Associates (NYSE: CBL) has the highest yield but nothing else about the company says it deserves a place in my portfolio.  While the yield metric doesn’t really set anyone apart, there is one metric that really stands out.

That metric is found in Taubman (NYSE: TCO) and it’s not their tiny dividend or their handful of properties.  At Taubman it’s all about quality over quantity as their $672 sales per square feet is the highest of all the retail REITs.  Those higher sales per square foot, given their size, means that they own massive malls that are in premium locations and allow them to charge premium rents.  I think there is more to the Taubman story than what we can infer by looking at these metrics, so I’m adding them to my watchlist.  I'll be watching their cash flow to see if that dividend is likely to go up or if investors are paying too much a premium for the company already.

Stepping away from the mall sector, a brand new REIT with a miniscule dividend by REIT standards is found in American Tower (NYSE: AMT).  American Tower owns communication towers, but their name is deceiving given that their business is worldwide.  Of their 49,000 communication sites, just 26,000 are located in America.  These towers have exceptional returns as more carriers are added to each tower. So as they are able to add carriers to their towers overseas, their cash flow and 1.29% dividend will go much higher. 

Having just converted to a REIT, we don’t have much history as to how quickly they’ll be able to grow that yield.  Right now investors are pricing in a lot of growth and valuation is a bit of a concern for me.  Still, I think American Tower is worth watching, but I'll be paying close attention to their debt to ensure they can manage it as they send more cash to their shareholders in the future.

Another newer REIT that’s interesting to watch is Pebblebrook Hotel Trust NYSE:PEB). CEO Jon Bortz is a hotel REIT veteran and came out of retirement to form Pebblebrook during the financial crisis to snap up  upscale hotels on the cheap.  His team has now purchased stakes in 24 hotels and they’ve been renovating and restructuring them to be more profitable.  Right now the company pays just a 2% dividend, which isn’t that much higher than a 10-year US Treasury note.  I’ll be watching to see if they can indeed grow that yield as their hotels begin to throw off excess cash.

I’m not ready to add any of these companies to my virtual “No Drip, No Mess” Portfolio just yet.  I do think that Pebblebrook, Taubman and American Tower are intriguing enough to add them to my low-yield watch list.  Each one owns a unique set of assets, many of them simply unable to be replicated by their peers.  The key will be in determining whether the market is placing too much of a premium valuation on these assets to ensure solid future returns.

latimerburned owns shares of American Tower and Pebblebook Hotel Trust. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend American Tower . Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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