4 Recommended REITs

Includes: ARE, FRT, HCN, O
by: Brad Case

An article by Annamaria Andriotis published yesterday morning at smartmoney.com includes four REIT recommendations by Philip Martin, REIT strategist at Morningstar. Martin suggests picking REITs in real estate segments "where consumer demand is less sensitive to the economy," including health care and retail. Martin's picks:

Through Monday's close, REITs had returned 8.53% during 2011 compared to 2.58% for the S&P 500 and 1.13% for the Russell 2000. Here are the returns over longer periods:

Average Annualized Total Return, Historical Periods Ending 5/31/11
Historical Period All REITs Equity REITs S&P 500 Russell 2000 Wilshire Total Market
10 years
15 years
20 years

REITs as a whole have gained 196% since the trough in March 2009, but are still 19% below where they were in February 2007 before the downturn started. Equity REITs (which own income-producing properties) have gained 210% since the trough and are now 17% below their pre-downturn peak. Mortgage REITs (which own real estate debt) have come back far less: they've gained just 95% since the trough and are still 41% below their pre-downturn peak. The current dividend yield is 3.45% for equity REITs, and 13.18% for mortgage REITs.

ARE has gained 167% in total return since its low point, and is now just 25% below its peak. FRT has gained 143% since its trough and has fully recovered--it is now actually 3% above its pre-downturn peak on a total return basis. HCN wasn't hit as badly during the downturn, but it has gained 124% since its low point and is now 18% above its pre-downturn peak. And Realty Income has been very good to its investors: it has gained 156% since its trough and is now 32% above its pre-downturn peak.

Disclosure: I am long Vanguard REIT Index Fund and ING Global Real Estate Fund.

Disclaimer: The opinions expressed in this post are my own and do not necessarily reflect those of the National Association of Real Estate Investment Trusts (NAREIT). Neither I nor NAREIT are acting as an investment advisor, investment fiduciary, broker, dealer or other market participant, nor is any offer or solicitation to buy or sell any security investment being made. This information is solely educational in nature and not intended to serve as the primary basis for any investment decision.

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