Even as recently as mid-2011, REITs were being sought not just for income, but for growth as well. This in some ways could be considered a vote of confidence in the potential recovery of the overall real estate market. In any case, real estate investment trusts in a number of different sectors could prove to be winners going forward - including those invested in residential, health care — especially those in the senior housing area, and industrial space. In this article, I analyze five of my best dividend producing REITs and explain why income seeking investors should give these a close look.
UDR (UDR) One of the most overlooked segments of the REIT market is those companies that specialize in apartments. But today, in the wake of job losses and continuing foreclosures, the rental housing market is booming. One of my favorites in this sector is UDR Inc., a company that runs the gamut from acquiring and renovating to developing and managing middle market apartment communities — with over $1 billion spent in 2011 alone in New York City.
This means that rents are high, and with an average occupancy rate of over 95 percent and nearly $800 million in available cash and credit, UDR is in an excellent position to continue snapping up property to add to its over $5 billion in unencumbered assets.
UDR reported fourth quarter 2011 funds from operations (FFO) of over $80 million, equating to 35 cents per share. This compares with just over $53 million in the same quarter of 2010, and 34 cents per share. With these impressive results, UDR is expected to have 2012 funds from operations of between $1.37 and $1.43 per shares.
Today, with a current share price in the mid-20s, the company plans to pay a dividend yield of 3.5 percent in 2012. Based on this, I tend to agree with analysts in buying this REIT, even if only for the short term.
BRE Properties (BRE) BRE Properties Inc. is another winner in the multifamily community sector. BRE, founded in 1970, has paid uninterrupted quarterly dividends ever since. BRE's 2011 fourth quarter fund from operations came in at just over $43 million, equating to 57 cents per share. This compares to nearly $10 million or 15 cents per share the year prior.
Total revenues were up in 2011, too, over 2010, from just over $371 million versus $335 million. Similar to UDR, this company also boasts a high occupancy rate — 96 percent — on its properties, thanks in large part to the surging demand for rental housing. Adding to that is BRE's untapped $750 million credit facility. Here, too, I'm in agreement with analysts' short term hold rating, although BRE has continued to retain a Zack's #3 Rank.
Health Care REIT (HCN) specializes in the investment and management of senior housing and health care real estate, with heavier concentration in the skilled nursing home arena due to an early 2011 $1.4 billion acquisition of Genesis Healthcare's nursing facility assets. I really like this REIT, as it's estimated for in excess of 10 percent profit - or 90 cents per share - over last year.
Although analysts rank this company a hold, I lean more towards a buy rating, especially in light of Health Care REITs double digit year-over-year percentage revenue growth for the past four quarters. In addition, between mid-November 2011 and mid-February of this year, the stock price rose over $7 per share, or over 14 percent. It is now trading in the low 50s.
Kite Realty Group Trust (KRG). Kite Realty Group is considered a mover in the REIT arena. This full service company places a primary focus on construction, development, and acquisition, along with ownership and operation of both community and neighborhood shopping centers.
Year to date, Kite's shares are already up nearly 21 percent due in part to a fractional rise in revenues. Occupancy of Kite's properties rose slightly in the third quarter of 2011 to a tad over 93 percent, up from just over 92 percent a year earlier.
Analysts' ratings are mixed, but I would buy - especially if the share price reaches the $5 range. It is currently trading at just under $5.20 per share. In late December 2011, Kite announced a quarterly cash distribution of 6 cents per share for the quarter ended December 31.
Pennsylvania Real Estate Investment Trust (PEI). This self-administered real estate investment trust places its focus on acquiring and holding rental real estate interests. Here again, with the surge in demand for rental property over the past couple of years, I feel that Pennsylvania Real Estate Investment Trust is poised for positive movement.
In fact, year to date so far the company's stock price is up over 31 percent, with a dividend yield in the 4.4 percent range. Trading between $6.50 and just over $17 over the past twelve months, Pennsylvania is now holding just under $14 per share.
In the third quarter of 2011, the company exceeded its funds from operations estimate of $0.36 and came in closer to $0.5. This was accomplished in large part thanks to well controlled costs and an occupancy rate of over 91 percent.
Due to its five year average dividend yield of over 11 percent, income investors should definitely take a look at Pennsylvania Real Estate Investment Trust for consistency that's likely to continue at least in the medium term.