Many REIT stocks have been rising in value since the market lows. Therefore, it is hard to find land-sale stock prices in this segment of the market. A good alternative is to choose companies with management teams that seem to be doing their jobs well, and succeeding at what they do. That may be the best way to choose five REITs for an improving real estate market.
Each of these stocks, in five interesting areas of the real estate market, look worthy to consider as investments:
Digital Realty Trust
Digital Realty Trust (DLR) is a REIT that owns, develops, and manages technology-related real estate, such as datacenters. It manages properties in nine countries. With a quarterly dividend of $0.73 and a price of $71, its yield is about 4.2 percent, and its total return has so far been excellent. This REIT is a bet on the continued spread of technology, particularly online data storage, but it is very popular, and thus perhaps overpriced.
PS Business Parks
PS Business Parks, Inc. (PSB) acquires, develops, manages, and leases multi-tenant office parks, industrial parks, flex commercial space, and similar commercial real estate. It operates in California, Arizona, Florida, Maryland, Oregon, Texas, Virginia and Washington, so it is well diversified geographically. It also manages 1.3 million square feet for Public Storage Inc. and affiliates. Its long term strategy is to seek out flexible properties that can be tuned to meet specific market conditions and to hire local managers who know their markets and understand their customers.
Annaly Capital Management, Inc. (NLY) is a mortgage REIT with a whopping yield, currently 13.71 percent. Obviously, such a high yield implies a high level of risk, and a great need for caution. However, Annaly has a seasoned management team and a friend in the Fed, which has announced it plans to keep interest rates low. A mortgage REIT makes its money on the spread between what it costs to buy mortgages, and what it pays to own them. As long as U.S. rates stay low, NLY is a stock to consider.
Avalon Bay Communities Inc. (AVB) is an apartment REIT. It specializes in upscale communities in prosperous areas with high barriers to entry for other REITs. Its target customers are professionals with no immediate plans to buy a home. It is diversified geographically, with communities in ten states and the District of Columbia. Providing upscale amenities allows this type of REIT to be picky about its tenants, and to retain them for long periods, thus avoiding turnover costs.
Kimco Realty Corp. (KIM) is a retail REIT that owns community shopping centers throughout the Western Hemisphere. It owns and manages centers in Canada, Mexico, and Chile as well as throughout the U.S. It usually focuses on consumer staple stores like groceries in upscale areas, where barriers to entry are high for competitors.
Owning a REIT allows an investor to participate in the real estate market without dealing with tenants or maintenance. These enterprises pay out most of their profits each year to avoid taxes, so dividends tend to be relatively high, and often to increase regularly. Investors must investigate before they invest, to insure that any REIT they choose will match their needs and their investing style.