2 High-Yield Real Estate Plays

Includes: EPR, HTA
by: Bret Jensen


According to a recent survey, the outlook for the commercial real estate market should be favorable for several years.

Real estate investment trusts look like a good place to find yield, especially as interest rates remain stable.

Below are two of my core positions in this space that are reasonably priced and provide solid yields.

According to a recent survey of several dozen economists and industry analysts, the recovery in commercial real estate still has several years to run. With interest rates continuing to stay near historically low levels, some real estate investment trusts (REITs) still look like good values given their yields and the outlook over the next few years.

I think this is especially true in a market that is likely to deliver far less than the over 30% returns, including dividends, equities provided in 2013. Here are a couple of REITs I still like and hold at current levels. Both make good starts in putting together a stable, long-term income portfolio.

Healthcare Trust of America (NYSE:HTA) is a real estate investment trust that focuses on medical office buildings and healthcare-related facilities. It has a well-diversified collection of healthcare properties in 27 states with just under 13mm square feet of leasable space.

The stock has performed well lately as FFO (Funds from Operations) estimates have consistently and incrementally climbed over the past 90 days for both FY2014 and FY2015. This REIT is about as exciting as watching paint dry with FFO increasing in the 5% to 8% range on an annual basis. HTA yields 5.1% and future dividend growth should be in line with FFO growth.

Demand for medical office space should be bolstered a bit as the Affordable Care Act gets implemented further and more previously uninsured individuals get coverage. The recently passed Medicare "Doc-Fix" is also a mild positive. The REIT is reasonably priced at 15x this year's projected FFO. Healthcare Trust is a core holding in my income portfolio. I add some shares when the overall market sells off. ACCUMULATE.

EPR Properties (NYSE:EPR) is a geographically diversified, specialty real estate investment trust 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 upped its dividend a little over 8% earlier in the year and the shares now yield a robust 6.5%. EPR Properties is seeing revenue growth in the teens annually both on organic growth and via strategic acquisitions. The company, because of its specific industry knowledge, could be well-positioned if the migration to charter schools continues or accelerates.

FFO growth should continue to be in the ~6% to ~8% annual range over the next couple of years and dividend growth should keep pace with that. The shares are reasonably priced at 12x FY2015's consensus FFO. This is another core holding I like to add to anytime the overall market stages a decent decline. ACCUMULATE.

Disclosure: I am long EPR, HTA. 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.