Mr. Bowman is a portfolio manager at Wickham Investment Counsel Inc. michael@wickhaminvestments.com
What are we looking for?
In the current economic cycle, the U.S. REITs sector may be well positioned to hold its ground amid continuing volatility.
Today’s screen looks at 22 U.S. real estate investment trusts that could appeal to investors looking for income, and also for those who want to position themselves as the U.S. recovery picks up steam.
The screen
My colleague Sean Pugliese and I ranked these REITs in order of their 2013 consensus distribution estimates, from highest to lowest. All companies have a yield of 5 per cent or more, and all companies have a market capitalization of $1-billion (U.S.) or more.
The AFFO, or adjusted funds from operations, is a financial performance measure primarily used in the analysis of real estate income trusts. It is generally equal to the REIT’s funds from operations, with adjustments made for recurring capital expenditures.
The P/AFFO shows the ratio of the current price to the 2013 consensus AFFO estimate. The AFFO payout is the payout ratio based on 2013 consensus estimates for distributions, and for the AFFO.
We are looking for high yields in conjunction with low AFFO payouts and low P/AFFO ratios.
What did we find?
Three companies show yields of over 6.5 per cent, with a P/AFFO in single digits, and AFFO payout ratios in the 60s. Newcastle Investment Corp. invests in real estate securities, and Hospitality Properties owns and leases hotels to unaffiliated hotel operators. Lexington Realty owns, operates and manages a diverse portfolio of properties.
Conclusion
REITs are generally anti-inflationary, and since they are required to return 90 per cent of taxable income to shareholders, yields are very generous. In addition, the U.S. economy has demonstrated tremendous resiliency, and improving conditions in the United States could translate into increased demand for industrial, retail and office space.
However, given the overhanging worldwide economic uncertainty, nothing is assured, although this corner of the market may offer a rosier outlook than many other asset classes.
High yielding U.S. REITs
| REIT | Ticker | Recent price ($) | Market cap. ($ bil.) |
|---|---|---|---|
| Newcastle Invstmt. | NCT-N | 8.2 | 1.41 |
| Starwood Prop. Trust | STWD-N | 22.84 | 3.09 |
| Omega Healthcare | OHI-N | 22.95 | 2.49 |
| Hospitality Property | HPT-N | 23.07 | 2.85 |
| Government Prop. Income | GOV-N | 22.33 | 1.22 |
| Medical Prop. Trust | MPW-N | 11.13 | 1.51 |
| Entertainment Prop. | EPR-N | 43.2 | 2.02 |
| Senior Housing Prop. | SNH-N | 21.66 | 3.82 |
| Mack-Cali Realty | CLI-N | 26.07 | 2.28 |
| Lexington Realty Trust | LXP-N | 9.4 | 1.61 |
All dollars U.S. Source: Wickham Investment Counsel Inc., Bloomberg
| REIT | Ticker | Recent price ($) | Market cap. ($ bil.) | P/AFFO | Fwd. Yield | AFFO payout |
|---|---|---|---|---|---|---|
| Newcastle Invstmt. | NCT-N | 8.2 | 1.41 | 5.62 | 12.30% | 68.90% |
| Starwood Prop. Trust | STWD-N | 22.84 | 3.09 | 11.54 | 7.90% | 91.00% |
| Omega Healthcare | OHI-N | 22.95 | 2.49 | 10.51 | 7.90% | 82.60% |
| Hospitality Property | HPT-N | 23.07 | 2.85 | 7.85 | 7.80% | 61.20% |
| Government Prop. Income | GOV-N | 22.33 | 1.22 | 11.48 | 7.60% | 87.80% |
| Medical Prop. Trust | MPW-N | 11.13 | 1.51 | 11.03 | 7.40% | 81.80% |
| Entertainment Prop. | EPR-N | 43.2 | 2.02 | 11.36 | 7.30% | 82.60% |
| Senior Housing Prop. | SNH-N | 21.66 | 3.82 | 12.31 | 7.20% | 89.00% |
| Mack-Cali Realty | CLI-N | 26.07 | 2.28 | 13.74 | 6.90% | 95.40% |
| Lexington Realty Trust | LXP-N | 9.4 | 1.61 | 9.97 | 6.50% | 65.00% |
| American Realty Cap. | ARCT-Q | 11.35 | 1.8 | 13.2 | 6.30% | 83.70% |
| Sun Communities | SUI-N | 42.01 | 1.25 | 13.09 | 6.10% | 80.40% |
| Highwoods Prop. | HIW-N | 31.58 | 2.43 | 11.4 | 5.50% | 62.80% |
| Brandywine Realty Trust | BDN-N | 11.59 | 1.66 | 14.69 | 5.40% | 79.60% |
| Liberty Prop. Trust | LRY-N | 35.18 | 4.19 | 16.27 | 5.40% | 88.20% |
| National Health Investors | NHI-N | 52.78 | 1.47 | 16.46 | 5.40% | 89.00% |
| Retail Prop. Of America | RPAI-N | 12.37 | 2.85 | 18.46 | 5.40% | 99.60% |
| Health Care REIT | HCN-N | 58.26 | 15.09 | 16.14 | 5.30% | 86.10% |
| Healthcare Realty Trust | HR-N | 23.04 | 2.01 | 18.39 | 5.20% | 96.40% |
| W.P. Carey Inc. | WPC-N | 50.24 | 2.03 | 13.22 | 5.20% | 68.90% |
| National Retail Prop. | NNN-N | 31.54 | 3.41 | 16.51 | 5.10% | 84.30% |
| Digital Realty Trust | DLR-N | 61.15 | 7.46 | 14.47 | 5.10% | 73.40% |
High yielding U.S. REITs
- NCT-N
- STWD-N
- OHI-N
- HPT-N
- GOV-N
- MPW-N
- EPR-N
- SNH-N
- CLI-N
- LXP-N
- ARCT-Q
- SUI-N
- HIW-N
- BDN-N
- LRY-N
- NHI-N
- RPAI-N
- HCN-N
- HR-N
- WPC-N
- NNN-N
- DLR-N
