3 Attractive REITs Worth Considering Now
Bret is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In the last two months, the 10-year yield on the 10-year treasury has gone from 1.6% to 2.6%. This rise in interest rates has caused most real estate investment trusts (REITs) to post declines over the same time period, providing better entry points for income investors looking to add some real estate to their portfolios. Here are three unique REITs that could provide you with reasonable valuations, high yield, and good growth prospects.
A Bakken Play
Investors Real Estate Trust (NYSE: IRET) owns a diversified portfolio of income producing properties. The company’s multifamily residential, office, medical, industrial, and retail properties are located in 12 states, primarily in the Upper Midwest. It has just under $2 billion worth of properties under management. This REIT also has a very healthy dividend yield of 5.7%.
Investors Real Estate Trust is selling at just over 12 times next fiscal year’s projected FFO, or funds from operations -- the REIT equivalent of what earnings represent for equities. Investors Real Estate Trust's multiple is a slight discount to larger competitors like Apartment Investment & Management, at 13.2 times 2014’s projected FFO, and Equity Residential, at 17.6 times 2014’s projected FFO. Investors Real Estate Trust also provides a much higher dividend yield than either of those rivals.
This REIT also has other several attractive features. The regions of the country in which the company’s property portfolio is situated are growing faster than the country as a whole. The company has several new properties coming online in North Dakota, where 18% of its portfolio already sits. The economic and job boom happening near the Bakken shale region should provide a significant tailwind to real estate appreciation and strong occupancy rates. It also has a large presence in Minnesota, with multiple medical real estate facilities that are over 94% leased. Finally, the company has a clean balance sheet with a weighted average interest rate on its overall debt is under 6%.
An Affordable Care Act Winner
Healthcare Trust of America (NYSE: HTA) is a real estate investment trust that focuses on medical office buildings and healthcare-related facilities. The company should benefit since approximately 25 million to 30 million more individuals will be covered by insurance after the Affordable Care Act is fully implemented. This will drive additional demand for medical visits and services especially on an outpatient basis. This, in turn, will increase demand for the medical office space that Healthcare Trust owns and operates. The aging of the domestic population will continue to provide a tailwind for demand as well.
This REIT offers a generous 5.2% yield. Revenues are growing in the 3% to 5% range currently, but the rate of growth should increase in coming years. The low amount of medical office facility construction over the past few years due to financial crisis, combined with the new demand outlined above, should lead to larger increases in leasing rates in the years ahead. In addition, the company’s property portfolio is currently 91% leased, but should experience higher occupancy rates in the years ahead as demand increases as well.
An Unusual REIT
EPR Properties (NYSE: EPR) is a geographically diversified, specialty real estate investment trust (REIT) that invests in properties in select categories which require unique industry knowledge. These properties include cineplexes, charter schools, and ski areas.
Because the company acquires and operates properties in niche markets, it faces less competitive bidders than it would if it was bidding for more traditional real estate assets such as office buildings or multi-family housing. The equity has fallen some $10 a share over last few months as interest rates have risen, and it now provides an attractive entry point.
The REIT pays a monthly dividend and currently is providing an annual yield of 6.2%. Two-thirds of the company’s properties are cinema multiplexes. Box office receipts set records in 2012 rising 6% year over year. Although the company does not get a cut of box office revenue, a healthy industry supports strong demand for its cineplex property portfolio.
EPR Properties is a significant player in the charter school market as well with 44 properties. Charter school enrollment has grown 50% over the past five years and is likely to remain growing solidly for the foreseeable future. This continued growth ensures strong demand for the company's charter school facilities. Overall, the company currently is achieving a 98% occupancy rate on its overall portfolio.
In summary, recent declines in the REIT sector because of the recent hike in interest rates are offering lower entry points than were available a few months ago. HealthTrust of America should also benefit from the focus on Affordable Care Act "winners" in the financial press as the policy gets closer to being implemented. EPR Properties' yield of more than 6% is also very attractive given the current low interest rate alternatives. All three REITs are good selections for long-term income investors looking to add real estate to their yield portfolios.
Bret Jensen owns shares of Healthcare Trust of America and Investors Real Estate Trust. The Motley Fool has no position in any of the stocks mentioned. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!