"Be moderate in prosperity, prudent in adversity" - Periander
The economy continues to provide mixed and concerning signals on which way the economy is going. Yesterday the market received disappointing Housing Sentiment and Empire Survey numbers. Today, housing starts posted their worst drop in three years.
Some of this can be blamed on some of the worst weather in over two decades across much of country. However, these numbers could also be signaling a deceleration in the economy after better than 3% GDP growth in the back half of 2013.
Personally it would not surprise me if this is another 'false start' to more robust & hoped for economic & job growth. These head fakes have been a hallmark on what continues to be the weakest post war recovery on record. Ten Year Treasury yields are below 2.7% in early trading today and continued their decline from just over 3% to start the year.
This should continue to bode well for the high-yield sectors that underperformed in 2013 as interest rates rose, but are pockets of strength early in the New Year. Here are a couple of unique real estate investment trusts (REITs) that I hold in my income portfolio that I believe will continue to outperform the market in the first half of the year. They hold specialized properties within the REIT space.
EPR Properties (EPR) is a geographically diversified, specialty real estate investment trust (REIT) that invests in properties in select categories which require unique industry knowledge. These properties include Cineplexes, Charter Schools & Ski Areas. 85% of its investment portfolio consists of property; the rest is made up of mortgages/notes receivable.
The REIT does not report quarterly results until next week but in its last earnings report in early November, Education Realty Trust nicely beat on top and bottom line expectations.
This REIT is one of several that moved to monthly dividend payouts from quarterly in 2013. The shares provide a hearty yield of almost seven percent (6.7%) after raising its payout again to start the New Year.
The REIT is tracking to just under 10% FFO (Funds from Operations) year-over-year growth in FY2013 and should deliver FFO gains in the high single digits in FY2014. Revenue growth should accelerate to ~15% in the New Year driven by some new acquisitions and organic growth. EPR is offering solid value here given its dividend yield and growth prospects. The shares trade at under 12.5 forward FFO, a discount to its five year average (16.9).
Education Realty Trust (EDR) is one of America's largest owners, developers and managers of collegiate housing. The real estate investment trust (REIT) owns or manages 71 communities in 24 states with ~40,000 beds. The REIT posted results yesterday that met bottom line expectations and nicely beat the top line consensus. It was the third quarter in a row it has performed that feat.
The shares yield almost five percent (4.7%) and the REIT has raised its payouts by ~110% since emerging from the financial crisis. Education Realty Trust sports a solid balance sheet and insiders have bought over $750K in new shares since the summer. The company is sporting good revenue growth with year-over-year gains expected in the high teens for both FY2014 and FY2015.
FFO growth is also doing nicely as the company posted 55 cents a share in FFO but analysts believe it will post 65 cents a share in FY2014 and 73 cents a share in FY2015. Education Realty Trust provides good value at under 13x forward FFO.
Both of these REITs show solid and growing yields, low betas, and good growth prospects. At these valuations they are good safe singles in what is shaping up to be a more volatile year for equities.