Since the Protected Principal Retirement Strategy portfolio is presently devoid of any U.S. equity REITs (I guess I got to the party too late), I wanted to review several candidates for eventual inclusion. Hopefully, the best of these will pull back some when (or if) we get a market correction.
By the way, does anyone remember "Duffy's Tavern"? If you do, part of this article's title will be recognizable. So will your age.
I have eight equity REITs on my watch list, and the ensuing paragraphs present an update on each and my thoughts as to target prices at which I would be tempted to add one, or more to the portfolio.
Hospitality Properties Trust (HPT) - An owner of hotels (including Amerisuites, Holiday Inns, Marriotts etc.), HPT currently pays a current dividend of $.47, which represents a $.02 increase over that paid in mid-2012. This affords a yield of about 7.2 percent. Last quarter it earned $.76 (versus estimates of $.77), which easily covered the dividend. However, this was the fourth consecutive quarter of earnings misses. The forecast coming five-year compound annual growth rate [CAGR] is 6.50 percent.
Medical Properties Trust (MPW) - MPW owns a wide range of medical properties, including hospitals, rehab facilities, medical office buildings, wellness centers etc. Paying a dividend of $.20 quarterly it sports a 5.4 percent yield. For the last quarter, revenues increased by 72 percent and earnings by 125 percent. The five year CAGR is 6.50 percent. As well as MPW seems to be doing, I am surprised that the dividend has remained at $.20 for the last 17 quarters.
Omega Healthcare Investors (OHI) - Omega owns long term facilities, assisted living, acute care, skilled nursing and rehab facilities. At the current dividend of $1.80, OHI yields 6.4 percent. Earnings continue to exceed analyst estimates, and for the latest quarter revenues increased by 24 percent and earnings by 76 percent. The dividend has been increased each of the past two quarters. Five year CAGR is 4.6 percent.
One Liberty Properties (OLP) - One Liberty owns commercial properties nationally, and at current price levels, the recently increased (to $.35 from $.33) dividend provides a yield of 6.4 percent. December 2012 earnings have yet to be released, but expectations are for $.41. With a CAGR of 11.1 percent, OLP has one of the higher forecast growth rates among the equity REIT sector.
Senior Housing Properties Trust (SNH) - SNH invests in Individual living facilities, assisted living, apartments, nursing homes and hospitals. It has long been a stalwart among the healthcare REITs. Earnings for the quarter ending December 2012 were $.43 (versus analyst's estimates for $.44). In October 2012, the quarterly dividend was increased from $.38 to $.39, and at current prices the yield is 6.2 percent. The five-year CAGR is 5.37 percent.
Wheeler Real Estate Investment Trust (WHLR) - WHLR invests in strip centers and free standing commercial buildings in the Mid-Atlantic, Southeastern and Southeastern U.S. I identified this as a potential portfolio addition a few months back; however, I have been unimpressed by its recent dividend reduction. It presently pays $.035 a month, down from a $.049 rate in December 2012. The present yield is 7.0 percent. The five-year CAGR is not available since WHLR has only been publicly traded for three months.
Whitestone REIT (WSR) - Whitestone owns retail, office and warehouse properties in mostly redeveloped areas in larger cities throughout the Southwestern U.S. It presently pays $.095 per month for an annual dividend of $1.14 and a present yield of 7.6 percent. Earnings estimates for the quarter ending in December 2012 are for $.24. Earnings have missed analyst's estimates for the past three quarters. More importantly, earnings are not covering the present dividend payout.
American Realty Capital Properties (ARCP) - ARCP owns free standing triple net lease commercial properties and pays a monthly dividend of $.075 for a yield of 6.8 percent. For much more detail on this extremely well run REIT I suggest reading what Brad Thomas has written about. Earnings for the quarter ending in December 2012 were $.28, easily beating analyst's expectations for $.23. Have not been able to find five year CAGR estimates for ARCP.
At present, none of the above meet our yield criteria (seven to eight percent annually) for the REIT portion of the Protected Principal Retirement Strategy portfolio. However, I am still looking for a market correction (or worse?) which would increase some of the yields to the point that I would consider initiating new positions. Based upon current metrics, I would favor all of the above with the exception of WHLR and WSR. My target prices on each are as follows:
HPT - At, or below $24
MPW - (provided we see a dividend increase soon) - At, or below $11
OHI - At, or below $24
OLP - At, or below $18
SNH - At, or below $22
ARCP - At, or below $12
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: This article does not constitute a buy or sell recommendation for any of the stocks mentioned.