The perpetually low interest rate environment has been great for real estate investment trusts (REITs) over the last few years. The Vanguard REIT Index Fund (NYSEArca: VNQ) is up 94% during the last five years, outperforming the S&P 500 index by more than 30 percentage points.
But with the threat of rising interest rates becoming a reality earlier this year, that same index is down over 5% for the last three months. This comes as the S&P 500 is only off 1%. As rates rise, some fear that investors might start trading in their REITs for higher yielding, but safer, debt plays.
But, never fear, the good times for REITs could continue for a bit longer.
The Federal Reserve recently started downplaying the idea of increasing interest rates later this year, per the most recent Federal Open Market Committee meeting minutes, released July 8. Nine of the 10 committee members are waiting on more evidence of sustainable economic growth before committing to a more hawkish monetary policy.
What’s more is that even as rates rise, it’s hard to see a mass exodus from REITs happening, especially when the industry is still offering dividend yields that are close to double the average S&P 500 dividend yield and 10-year Treasury yield.
It’s also worth remembering that even when rates do rise, the increase will be gradual. And the beauty beyond REITs’ dividends or exposure to rising real estate prices is the fact that you aren’t limited to one industry.
With that in mind, here are the top five REITs to own today:
Health Care REIT (NYSE: HCN)
Let’s start things off with health care. This part of the market has gotten a lot of attention thanks to Obamacare and the aging baby boomer population. Health Care REIT offers a dividend that yields 4.8% and owns a variety of health care related properties.
Notably, its Sunrise Senior Living acquisition will give it more exposure to aging baby boomers. This is also part of its plan to shift away from properties that are reliant on government insurance programs.
Ventas Inc. (NYSE: VTR)
Continuing with the health care theme, Ventas is also adding to its senior-living portfolio to take advantage of an aging America. The other nice thing about Ventas is that it operates in more affluent areas of the country, helping insulate it against economic ups and downs.
Like Health Care REIT, Ventas is trying to move away from government insurance exposure. Around 80% of its revenues are now from private-pay sources. The company is also planning to spin off a new REIT, called Care Capital, which will have over 350 skilled nursing facilities.
Ventas pays a 4.9% dividend yield.
Camden Property Trust (NYSE: CPT)
Camden offers a 3.6% dividend yield and operates as a residential REIT. The apartment industry is growing nicely as the U.S. is shifting from a homeowner economy to a rental economy.
Camden owns over 180 properties, with a focus on the Sun Belt – one of the fastest growing housing areas in the U.S. Its core portfolio is focused on middle- to upper-market apartments, typically two- and three-story buildings in suburban settings.
Kimco Realty Corp. (NYSE: KIM)
Kimco is one of the oldest retail REITs around. About a fifth of its leases are 20 years or older. The interesting thing here is that as these old leases expire, Kimco will be able to renew at much higher rent rates.
The REIT owns some 750 shopping centers across North America, making it the largest portfolio of neighborhood and community shopping centers on the continent. It’s truly a pure-play North American retail REIT.
Kimco has a 4% dividend yield.
Host Hotels & Resorts Inc. (NYSE: HST)
Turning the focus to hotels, Host Hotels owns well over 100 luxury hotel properties and has joint venture interests in nearly 20 hotels in Europe, as well as some investments in Australia and India.
The beauty of Host Hotels is that it focuses on the luxury market, with brands like Ritz-Carlton. There’s a low supply of hotels coming to market, including in Host Hotels’ key market – New York – which is a positive for pricing going forward.
Host Hotels pays a 3.9% dividend yield.
Collect monthly $1,200 “rent checks” — without being a landlord
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