Barrons Calls Out These High Yield Plays

Includes: EPR, HPT
by: Bret Jensen


Barrons did a piece this weekend on high-yield plays for income investors willing to go out a bit on the risk curve.

Some Real Estate Investment Trusts were highlighted. The sector underperformed the market in 2013, but is outperforming market in New Year.

Below are two selections that pay better than a 6% yield and sport attractive valuations.

Barrrons did a piece on high yield sectors for income investors frustrated with the less than 3% levels available from 10 year treasuries in this weekend's magazine.

The article reviewed some of the plays in high yield spaces such as Master Limited Partnerships [MLPS], Business Development Companies [BDCS] and real estate investment trusts (REITs) for yield investors willing to move out a bit on the risk curve.

It was the selection of REITs that caught my attention as value seems to be present in the area after the sector significantly underperformed the overall market in 2013, but has done better in 2014. I also like the value in a couple of the highlighted selections.

Hospitality Properties Trust (NYSE:HPT) owns and develops hospitality properties. The company's hotels are operated as Courtyard by Marriott, Residence Inn by Marriott, Staybridge Suites by Holiday Inn, Candlewood Suites, AmeriSuites, Prime Hotels and Resorts and others. The trust owns ~300 hotels located in 38 states in the United States; Puerto Rico; and Ontario, Canada.

I like the hotel space right now as average daily room [ADR] and revenue per room (RevPAR) rates are growing at nice clips and occupancy rates are rising as well. In addition, due to the lack of construction during and in the years after the financial crisis, demand is outpacing supply of rooms.

The shares yield a robust seven percent. Even better, this REIT is valued at less than 9x forward FFO (Funds from Operations). FFO consensus estimates for both FY2014 & FY2015 have moved up modestly over the past month as well. I look for revenues, FFO and dividend growth to increase in the ~4% to ~6% range annually over the next couple of years.

EPR Properties (NYSE: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. This REIT has been in my portfolio for some months.

The REIT pays an over six percent (6.4%) dividend and went to a monthly payout in 2013. The company has incrementally and consistently raised its dividend payout since emerging from the financial crisis. EPR Properties is increasing revenues in the teens annually due to organic growth and some strategic 'bolt on' acquisitions.

I also think Charter Schools are gaining sustainable momentum due to the results they are showing at a lower cost over public schools. Expertise in this niche should pay dividends in the years ahead. Given growth and yield, the shares go for a reasonable forward FFO of under 13.

Disclosure: I am long EPR. 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.