Protected Principal Retirement Strategy: Have The REITs Left Me Behind?

by: Akaralph

As I have mentioned in a previous article (here), with my sale of Alpine Premier Properties (NYSE:AWP), I am alas without a real estate investment trust (REIT).

There are three conventional ways to participate in the REIT markets: via mutual funds, closed-end funds [CEFs], and by purchasing the stocks of listed companies. I frankly am not enamored with mutual funds, so that leaves me with two possibilities.

REIT Stocks

I try to spend time reading as much as possible about equity REITs, particularly articles posted on SA by Brad Thomas. Between my own research, and Brad's coverage of several REITs in which I have an interest, I have developed a possible portfolio of individual REITs for inclusion in the Protected Principal Retirement Strategy portfolio. Unfortunately, at the present time these REITs when combined are yielding less than my target, so, for the time being I continue to stay on the sidelines. Here are the equity REITs that I am hoping will someday be added to the portfolio:

Whitestone (NYSEMKT:WSR) - WSR is actively involved in retail, office and warehouse properties in areas undergoing redevelopment and revitalization, particularly in larger metropolitan areas of the southwest U.S. About half of the portfolio is located in the Houston area.

Whitestone is a monthly dividend payer (a definite plus), doling out $.095 a month for an annual dividend of $1.14. That affords investors a present yield of just under 8 percent. The immediate concern that I have is that in recent quarters its funds from operations (FFO) have not met expectations.

Wheeler REIT (NASDAQ:WHLR) - WHR owns and manages retail properties in the mid-Atlantic states, and has only been trading publicly for about three months.

Wheeler expects to pay a monthly dividend of $.035, for an annual total of $.42. Its initial dividend of $.049 was for a full month and a partial month. At the current price, this equates to a yield of about 7 percent. As of September 2012, WHLR owned properties worth approximately $15.8 million. Its first quarterly earnings since going public should be released in the next few weeks.

Omega Healthcare Investors (NYSE:OHI) - OHI invests in long-term care facilities, owning independent living, assisted living and skilled nursing facilities throughout the U.S.

OHI pays a quarterly dividend, which has increased from $.17 in January 2004 to its current level of $.44. At the current price, OHI yields just over 7 percent. FFO for the quarter ending September 2012 was $.54, easily supporting the dividend. Annual earnings are forecast to reach $2.24 in 2013.

Medical Properties Trust (NYSE:MPW) - Medical Properties Trust acquires, develops and leases hospitals and medical office buildings.

Since the end of 2008, MPW has paid a quarterly dividend of $.20 for a current yield of 6.3 percent. I would be remiss if I did not note that I would be more inclined to purchase MPW if the dividend were to consistently increase.

MPW's FFO in September 2012 was $.25, which provided adequate dividend coverage, and for 2013, FFO is estimated to be $1.07.

One Liberty Properties (NYSE:OLP) - One Liberty Properties owns and manages retail, industrial and office properties throughout the U.S.

OLP has recently raised its quarterly dividend from $.33 to $.35 and has a current yield of about 6.5 percent. With an estimated FFO for 2012 of $1.60, the payout is adequately covered. For 2013, FFO estimates are for $1.65.

Hospitality Properties Trust (NYSE:HPT) - HPT owns hotels, including Marriott's, AmeriSuites and the like in 38 states, Canada, and Puerto Rico.

In October 2012 the quarterly dividend was raised from $.45 to $.47, and the stock currently yields 7.7 percent. While FFO has adequately covered the dividend, HPT has missed estimates for several quarters. FFO for 2012 is estimated to be $3.04 and for 2013 it is estimated to be $3.17.

My primary concern about HPT would be if the economy slips into recession, and travel is adversely affected.

In case anyone is wondering, I have omitted mortgage REITs from consideration as portfolio participants as I see them as being very risky, particularly since spreads seem to be tightening, and recent dividend cuts by the major players in this sector. I keep one mREIT on my watch list - Newcastle Investment Company (NCT), which I have recently sold (maybe a mistake?).

Closed-End REIT Funds

There are about a dozen REIT CEFs that I follow, the majority of which have yields that have become compressed due to price appreciation, or for other reasons. I have always looked to CEFs for the opportunity to invest in global REITs, since purchase of individual country stocks can be a little tricky. As I have previously mentioned I sold the portfolio holdings in Alpine Global Premier Properties , which I continue to monitor for possible re-purchase on a pullback.

I am currently closely watching three for potential purchase: Nuveen Real Estate Income (NYSE:JRS), Nuveen Real Asset Income and Growth (NYSE:JRI) and Nuveen Diversified Dividend and Income (NYSE:JDD). Of these, only JRS is a pure REIT play.

Nuveen Real Estate Income - In my article of January 13 (here) I discuss JRS in more detail. JRS invests in a diversified portfolio of REITs, including preferred stocks. I have followed JRS for over a year, and have missed a few opportunities to purchase it at a discount to net asset value [NAV].

It currently sells at about a 5 percent premium to NAV, and I believe with a little patience it can be bought at a smaller premium. JRS pays $.23 quarterly, of which about $.15 is return of capital. This might give some investors a little heartburn, and if it does I suggest possibly looking elsewhere. In 2012, the NAV outperformed the stock price (19 percent to 9 percent), and the stock has a yield of 8.17 percent.

Nuveen Real Asset Income and Growth - I include JRI (and JDD) in the REIT CEF category since the largest portion of their investments consist of REITs.

JRI sells at a discount to NAV of 7.4 percent and pays a quarterly dividend of $36.75, all of which is income. JRI is relatively new, and since it has begun trading the NAV gain has exceeded the price gain. The JRI portfolio consists of a mix of equities, preferred stocks and some corporate bonds.

In addition to exposure to REITs, JRI's portfolio contains positions in utilities, energy and infrastructure, and is worth placing on a watch list.

Nuveen Diversified Dividend and Income - JDD currently trades at a 4 percent discount to NAV and yields just under 8.2 percent. The quarterly distribution is about evenly split between income and return of capital.

The price appreciated over 23 percent in 2012, and is up almost 6 percent year-to-date.

JDD's portfolio is a bit more diversified than that of JRI, holding about 30 percent REITs, along with investments in energy, insurance, mining and emerging markets. I believe that JDD bears watching for potential purchase on any pullback. My only concern is that fees currently total 1.85 percent.


I hate to sound like a broken record, but I continue to be wary of the markets, at least short term. So, while I continue to monitor all of the above on a daily basis, I do not intend to purchase until we have better direction.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

Disclaimer: This article does not constitute a buy recommendation for any of the stocks or closed-end funds mentioned.