Income investors who look for supplemental income during retirement or consistent income streams to meet their regular monthly expenses, such as rent, mortgage, utility bills, and other expenses, have some options for monthly income in equity instruments, including real estate investment trusts (REITs). There are a few publicly-traded REITs in the United States that pay their distributions on a monthly basis. Investors who seek monthly income from investments should evaluate them as possible sources of regular monthly income.
Given that REITs are legally required to distribute at least 90% of their taxable income to unit holders, REITs generally have relatively high yields that are especially appealing in the current yield-scare environment. However, some REITs carry substantial risks, such as the highly-leveraged mortgage REITs, which is generally reflected in their elevated yields. Thriving in the low-interest-rate climate, REITs have provided for strong total returns, having outperformed the broader market for four consecutive years now. Investing for income should also incorporate the assessment of the prospects for total returns, not solely income as an aspect of total returns.
Looking specifically at the six aforementioned REITs with monthly cash distributions, it may be concluded that only one, ARMOUR Residential REIT (ARR) is a mortgage REIT (mREIT). The six REITs with monthly distributions are generally small-capitalization equities, with the exception of ARMOUR Residential and Realty Income (O). The smallest is Wheeler Real Estate Investment Trust (WHLR), with market capitalization of only $20 million. It become public through an initial public offering in November 2012. Distribution yields on the six REITs are higher than the average REIT yields of 3.5% for FTSE NAREIT all equity REITs and 12.93% for FTSE NAREIT mortgage REITs.
ARMOUR Residential REIT is an mREIT that invests in hybrid adjustable- and fixed-rate residential mortgage-backed securities, including Freddie Mac, Fannie Mae and Ginnie Mae mortgage securities. The REIT currently pays a monthly cash distribution of 8 cents per unit, which is lower than in the same month of the previous year and in the month before, but still generous, given the yield of 13.7%. The units trade below book value, at a price-to-book of 0.88. While this mREIT has strong revenue growth and the widest net interest spread among peers, it has very high leverage, with debt to equity of 8.12 to 1.00. ARMOUR Residential is down about 3.0% over the past 12 months.
Inland Real Estate (IRC) owns, operates, and develops shopping centers and single-tenant retail properties in the U.S. Midwest, with 60% of its retail portfolio concentrated in the Chicago area. Its current monthly cash distribution is 4.75 cents per unit, and the annualized distribution yield is 6.4%. The REIT's debt to equity is 1.83 to 1.00. Its price-to-book ratio is 2.6 versus 3.2 for its peers on average. Inland Real Estate Corp.'s consolidated same-store net operating income (NOI) was up 5.5% year-over-year in the third quarter of 2012, marking the seventh consecutive quarterly increase. Still, the company reported the third-quarter funds from operations (FFO) below analyst expectations. It is also relevant to note that this REIT has some strong pricing power. It raised average base rent for new leases by 39.7% and renewal leases by 14% over expiring average rents for the quarter. Inland Real Estate Corp. is up 5% over the past year.
LTC Properties (LTC) invests in senior housing and long-term care-related facilities through facility lease transactions, mortgage loans, and other investments. The REIT pays a monthly cash distribution of 15.5 cents per unit. LTC Properties Inc. has raised its payout at an average annualized rate of about 3% over the past five years. The REIT operates in historically defensive industry with strong fundamentals, including rising Medicaid/Medicare spending and a rapidly growing target population of Baby Boomers. In the previous quarter, this REIT realized a 10.6% year-over-year increase in revenues and normalized EBITDA and an 11.0% increase in normalized FFO. The REIT has a price-to-book of 2.6 versus 2.0 for its industry. Its returns have been remarkable over the past few years, with stock appreciation of 16.4% over the past 12 months.
Realty Income acquires and owns commercial retail real estate, leasing its retail properties to regional and national retail chain store operators. According to the REIT, Realty Income has a "44-year track record of providing dependable monthly income." The trust's board has just approved a new monthly cash distribution of 18.09167 cents per unit, a 19.2% increase from the previous rate of 15.175 per unit. This marks the 70th distribution increase since Realty Income went public in 1994. Prior to this boost, cash distributions grew at an average annual rate of 2.3% over the past five years. The REIT has a price-to-book of 3.2, on par with its peer group, but above the REIT's five-year average ratio. The stock is up nearly 19% over the past 12 months.
Whitestone REIT (WSR) invests in and operates retail, office, and warehouse properties in the Houston, Dallas, San Antonio, and Phoenix metropolitan areas. This REIT pays monthly cash distributions of 9.5 cents per unit. The REIT, whose strategic goal is to grow into a $1 billion company within 5 years, is trading on a price-to-book of 1.4, below its peer group's 1.8. The REIT invested $113 million in acquisitions since August 2010. It is up 10.7% over the past year.
Wheeler Real Estate Investment Trust is a new addition to the family of publicly-traded REITs. This REIT seeks opportunistic acquisitions and well-located, potentially dominant retail properties that generate attractive risk-adjusted returns. Wheeler REIT pays monthly cash distributions of 3.5 cents per unit. Its first distribution will be paid on January 31, 2013 to shareholders of record on January 1, 2013. The REIT has a negative price-to-book ratio. Its stock is down 1.8% since the beginning of the year.