Three different REITs, three different sectors. All in great shape with limited downside.
REIT stocks are great for both regular and retirement investors. As a security representing a hard asset, as long as the underlying asset isn’t over-leveraged, the property stands a good chance of being worth something over the long haul. This is likely to be true even if the economy gets whacked.
REIT stocks have a tendency to ebb and flow, and move up and down, depending on the overall psychology in the market and the sector. That’s why I like to choose REITs that have a history of either standing firm or recovering even if things get really bad.
Ashford Hospitality Trust (NYSE:AHT) and Ashford Hospitality Prime (NYSE:AHP) are hotel REITs, the latter being a relatively recent spin-off of the former.
Ashford was a remarkable story during the financial crisis. Management has experience with booms and busts, so it not only drew down a credit facility to provide continued liquidity, but it engaged in numerous hedges that kept income coming in while the underlying businesses were experiencing 20% revenue cuts.
While other hotel REITs suspended both common and preferred dividends, Ashford only suspended the former. Its common stock hit a low of $0.86 before recovering to over $12 after the crisis passed. Its preferred D shares were trading under $8, and you bagged a triple if you bought the preferred shares in at the low.
The spinoff are their higher-end properties and both REITs are doing spectacularly well. The companies reported earnings on Thursday, with RevPAR rocketing and business continuing to boom.
Both have ample liquidity, are managed by the same folks, have substantial credit available and pay solid dividends of 4.4% and 1.2%, respectively. I expect AHP to increase that dividend in the years to come.
Select Income REIT (NYSE:SIR) focuses on owning and investing in property that is leased to single tenants. This includes 280 buildings, as well as land parcels and easements totaling 27 million square feet, across 21 states. 229 buildings and 18 million square feet exist on the lovely island of Oahu in Hawaii.
I happened to be on Oahu a few weeks ago and spoke with a good friend who, as it happens, knows Select Income very well and is in real estate himself. Oahu is booming, and Select is extremely well-positioned.
96.1% of SIR’s square footage is rented, and same-property NOI increased 3.3% for the first six months of the year. On top of this, SIR merged with Cole Corporation Trust by buying it out for about $2.9 billion, expanding its reach. Select Income is paying a 6.8% yield.
Finally, we have Retail Properties of America (NYSE:RPAI) acquires, develops and manages a variety of retail properties that it describes as “power centers, community center, and lifestyle centers”. That’s code for “strategically located in high-traffic areas”.
It has 233 properties representing 23.6 million square feet. It has leased 94.8% of its square footage and has a presence in 36 states. Some of its top tenants by annual base rent are big names like Best Buy (NYSE:BBY), TJX Companies (NYSE:TJX), Rite Aid (NYSE:RAD) and Bed-Bath & Beyond (NASDAQ:BBBY).
It is also seeing strong growth, with same-property NOI up 4.8% in the latest quarter. This fine operation pays a 4.3% yield.
All three of these REITs are worthy of your consideration. Each hits a different sector and each appears to have growth days ahead.
Lawrence Meyers owns shares of AHT and AHP.
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