2 High Yielding Small Cap REITs To Consider In Today's Sell-Off

 |  Includes: ARB, KRG
by: Bret Jensen

I'm trying to take advantage of today's "fiscal cliff" sell-off by adding to my income portfolio. One area I like is some of the under-the-radar real estate investment trusts (REITs). Some of these plays provide good yields, and still have solid prospects if real estate continues to improve. I like the smaller REITs that have not had the large run-ups like most of the larger REITs. Here are two high yielders with small market caps. They both sell in the $5 to $6 price range, and get little analyst coverage.

Arbor Realty Trust, Inc. (NYSE:ABR) operates as a REIT. The company invests in multi-family and commercial real estate-related assets using a variety of financing and equity products.

Four reasons ABR could be good income portfolio addition at $6 a share:

  1. It just reinstated a dividend this year after a four-year hiatus because of the financial crisis. It has already raised the dividend payout twice this year, and ABR yields 7.4%.
  2. Several Insiders have bought over 150,000 shares over the last seven weeks.
  3. Deutsche Bank just initiated the shares as a "Buy" with a $7.50 price target.
  4. ABR sells at just 80% of book value. It also has produced positive operating cash flow for three of the last four quarters, despite a net income loss over the last year.

Kite Realty Group Trust (NYSE:KRG) is a publicly owned real estate investment trust. The company owns interests in a portfolio of 60 operating and redevelopment properties totaling approximately 8.9 million square feet, and an additional two properties currently under development totaling 0.6 million square feet.

Four reasons KRG is a good income play at just under $5.50 a share:

  1. I have owned this stock since the second quarter. It continues to improve the leasing rate at its properties (over 93% now). It just signed The Fresh Market (NASDAQ:TFM) to long-term leases for two of its properties.
  2. Revenue growth is expected to grow over 12% in FY2013 after being basically flat this fiscal year and as new properties come on-line.
  3. KRG yields 4.5%, and I would expect it to raise its payout next year as those additional revenues/cash flow comes through.
  4. The stock sells for a reasonable 12x forward earnings given its dividend yield, and it has a stable of high quality tenants (PetSmart, Publix, Target, etc.) for the majority of its leases.

Disclosure: I am long KRG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.