9 Obscure REITs Yielding More Than 5% With Low Leverage

by: Alan Brochstein, CFA

Real Estate Investment Trusts (REITs) are soaring this year by any measure. The iShares Dow Jones Real Estate ETF (NYSEARCA:IYR) is up over 25% YTD, in stark contrast to the overall Financial sector for the S&P 500, which includes REITs and is up just 8.1% this year.

While I don't call myself an expert in the area, I do spend considerable time with clients discussing them on a weekly basis. I have noticed that most REITs have dozens or more analysts that follow them, but many aren't as widely followed. These are typically either smaller and/or a bit off-the-run (as you will see).

I decided to investigate if there might be some reasonable offerings, so I ran the following screen:

  • Dividend Yield > 5%
  • Market Cap > $500mm
  • Number of Analysts < 7
  • Net Debt to Capital < 50%
  • Leverage (A/E) < 2X

Here are the 9 names that met the criteria ():

REITS 110610

The list consists of names that are typically Small-Cap/Mid-Cap, ranging from $734mm to $3 billion in market cap. The typical yield is close to 6%, with a range of 5% to 7.5%. The typical net debt to capital ratio is close to 20%, which is very low for the industry. I included an additional metric of leverage (Assets/Equity) to help adjust for the size of preferred stocks or other types of liabilities that are typically present among REITs.

I also included P/TB, as the metric is reasonably low for most of the group. Note that some of these stocks have done well, but they are typically lagging (at a median of 14% YTD, though with two actually down on the year). I share this list mainly to serve as a starting point for readers interested in doing their own work. I do have a few comments, though, that I can share.

Taking them in order:

One client discussed Getty (NYSE:GTY) recently. It has the fewest analysts covering it of the group, mainly because its focus is so niche-oriented (gas stations). One thing to understand better is the relationship with Lukoil (OTCPK:LUKOY).

Government Properties (NYSE:GOV) is also somewhat unique, focused on government-leased facilities. The company is a recent spin-out. I looked at it when it did the IPO last year and found the alignment with shareholders to be good despite the fact that they rely on outside management.

Entertainment Properties (NYSE:EPR) too is rather unique, focusing mainly on movie theatres but also charter schools. They have stumbled in their diversification program and have run into a few other issues, but I like the CEO (based upon an interview I read). This one seems a bit extended but might make sense on a pullback.

Finally, National Health (NYSE:NHI) is one I highlighted almost three years ago due to its very low leverage. It has performed remarkably well, rising to an all-time high. Not too many REITs can say that! Note that the dividend has increased about 18% over those three years. Not too many REITs can say that either!

Hopefully this is helpful to those of you looking for yield but trying to avoid stepping on landmines. Relative obscurity and low-leverage just may be allowing investors a reasonable opportunity here.

Disclosure: None

About this article:

Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here