Saturday, November 17, 2012

3 REITs Offering Outstanding Dividends

The real estate investment trust, or REIT, sector has recovered nicely following the financial crisis. In fact, the disaster helped separate the wheat from the chaff. Overleveraged companies got their heads handed to them and were among the first to cut dividends. Other REITs that managed their debt and liquidity well not only survived, but thrived.�Here are three such REITs that I’ve followed for a long time that I think make an excellent addition to any regular or retirement account.

Winthrop Realty Trust

Winthrop Realty Trust (NYSE:FUR) is rather modest by REIT standards. It owns 16 triple-net-leased properties; two office buildings located in Amherst, N.Y.; an office building located in Indianapolis; a nine-story office building in Houston; and an 80% interest in 128,000 square feet of retail and office space and 208 parking spaces located in Chicago.

Winthrop also has chosen to diversify its portfolio by owning loan receivables and preferred equity investments, as well as trading other real estate securities. For example, this past quarter, Winthrop originated a $20 million mortgage loan to a Manhattan hotel, sold off a $14 senior position in another loan, and held onto a junior position in the same loan that pays 13.4% interest. In effect, you’re buying a catch-all real-estate play that owns property and makes loans to collect interest.�Winthrop Realty raised capital with a stock offering this past year that diluted its shares considerably, but despite that, the company still raised its net income by 60%. And FUR pays a great 7.1% yield.

Newcastle Investment Corp.

If you are in the mood for a dicier play, have a look at Newcastle Investment Corp.�(NYSE:NCT). The company invests in a portfolio of real estate securities, including commercial mortgage-backed securities, senior unsecured debt issued by property REITs, real estate-related asset-backed securities, and agency residential mortgage-backed securities.�Newcastle also owns interest in loans and pools of loans, including real estate related loans, commercial mortgage loans, residential mortgage loans and manufactured housing loans. Lastly, NCT also owns interests in operating real estate.

In this case, you are relying entirely on the expertise of management to pick and choose the right investments. Newcastle got hammered along with others of its ilk in 2008 but has rebounded quite nicely and is generating good cash flow. NCT cut its dividend in 2009 but reinstated it in 2010, and it currently yields 13.2%. But be forewarned — this play is more geared toward aggressive investors. If too many of these investments don’t work out, NCT stock could be in real trouble.

Ashford Hospitality Trust

Ashford Hospitality Trust (NYSE:AHT) is a hotel REIT that not only outperformed all of its peers post-crisis, but managed its liquidity and debt better than any of them when times were tough. Many other hotel REITs not only eliminated their common dividends, but their preferred ones as well. Ashford only eliminated its common dividend.

Ashford’s management has 20 years of experience in hotel management and deal-making, and it has boosted the company’s income during the crisis by using complex hedges and derivatives that substantially assisted with cash flow. These guys are savvy dealmakers and own a solid portfolio of more than 100 hotels, broadly diversified in brand and geography. The stock pays a 4.4% yield, and I also like the Preferred D and E shares, which pay 9% and 9.6%, respectively.

As always, read over the financial statements and make sure each REIT’s debt ratio is within limits you are comfortable with.

As of this writing, Lawrence Meyers was long AHT.

No comments:

Post a Comment