Five REITs to consider
Dear Mr. Berko:
I have $20,000 to invest in one or two real estate investment trusts (REITs) and need your recommendations for a long-term (three- to five-year) time frame. I want to earn 6 percent in dividends and will reinvest those dividends into additional shares. I want to avoid highly leveraged REITs, because I’m certain interest rates will be much higher in a few years, and REITs with large debts will have high capital costs, reducing their incomes and dividend payouts.
A.M., Fort Walton Beach, Fla.
Dear A.M.:
REITs have been soaring since January. The iShares Dow Jones Real Estate Exchange Traded Fund (IYR-$54.86) is up nearly 40 percent from its $40 low price earlier this year. That’s an impressive move compared with the S&P financial sector, which is up 8 percent for the same period.
I don’t follow REITs, but I do follow recommendations made by a Russian hedge fund manager who lives in Kiev, recently retired from the KGB and is a consultant to Goldman Sachs. This fellow, whom I shall call Bruce, selected five REITs he believes have low downside risk and a good chance for appreciation because each has a low debt-to-capital ratio. Bruce believes their low debt will increase their earning potential (more than REITs with higher debt) when the economy turns the corner.
Though most REITs have debt-to-capital ratios between 50 percent and 70 percent, the following REITs have ratios of less than 20 percent. Bruce, bald as a bullet, is one of the sharpest knives in the drawer, and the following five REITs may prove his worth.
Entertainment Properties Trust (EPR-$47.19) owns megaplex theaters, entertainment retail centers and destination recreational and specialty properties in 26 states. EPR has a $37 book value, its $2.60 dividend yields 5.5 percent, and debt is 7 percent of capital. Seven analysts cover EPR, and six have a “buy” recommendation on the stock.
Getty Realty Corp. (GTY-$30.20) owns and leases convenience stores that also sell oil and gas, plus several petroleum distribution centers. GTY’s 1,054 properties have an $11.47 book value, its $1.92 dividend yields 6.4 percent, and debt is 16 percent of capital. No “top-ranked” analysts follow GTY, but Bruce thinks this could be a $37 stock in two years.
Medical Properties Trust Inc. (MPW-$10.14) owns 21 acute-care hospitals, 13 long-term acute-care hospitals, six inpatient rehab hospitals, six wellness centers and two medical office buildings. MPW has a $9.13 book value, the 80-cent dividend yields 7.9 percent, and debt is 20 percent of capital. Jeffries and JMP Securities have a “buy” rating on MPW.
Government Properties Income Trust (GOV-$26.38) owns 33 properties that are leased to government tenants. GOV has a $19.42 book value, its $1.64 dividend yields 6.2 percent, and debt is 16 percent of capital. Four analysts follow this fund; two have a “buy,” and two have a “hold” recommendation.
LTC Properties Inc. (LTC-$26.47) owns 61 skilled nursing properties with 7,200 beds and 84 assisted living properties with 3,774 units. LTC has a $13.21 book value, its $1.68 dividend yields 6.3 percent, and debt is only 8 percent of capital. JMP Securities and Hilliard Lyons rate it as a “buy.”
Don’t cherry-pick one or two of these issues; rather, divide your $20,000 evenly among all five.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. ©2010 Creators.com
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