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‘Rocking REITs’ Right for Your Portfolio?

Friday, 1 Jun 2012 | 12:00 AM ET

With bond yields at record lows, many investors are searching for higher returns from stocks that pay dividends.

So far this year, real estate investment trusts are providing solid yields and price appreciation that’s beating the overall stock market.

The broader MSCI REIT Index is up about 7 percent in 2012, while the S&P 500 Index is up about 4 percent. And compared to other sectors, REITs are solidly among the best performers.

Sector Watch

Sector YTD % Chg. Sector YTD % CHg.
Biotech 30.3 REITs 7.1
Housing 19.7 Banks 11.4
Airlines 17.5 Cyclicals 2.8
Retailers 15.0 Insurance 2.7
Brokers 2.9 Defense 2.0
Source: CNBC Analytics

When we mention REITs, many investors think of the big names like Simon Property Group and AvalonBay Communities that are in the S&P 500.

But with the retailer sector also performing well, smaller REITs that specialize in stores like Weingarten Realty Investors are also benefiting.

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“While [retail] is a little dilutive in the short run, we think it's right long-term. We'll reinvest with cities with good growth and barriers to entry in Florida, California, Texas, Georgia and the Washington, D.C.-area,” Weingarten Realty CEO Andrew Alexander told CNBC’s “Street Signs” on Thursday.

Weingarten Realty—up more than 17 percent so far this year and yielding 4.47 percent—was one of the five "Rocking REITs" identified in an exclusive "Street Signs" screener of under-the-radar names in the group.

ROCKING REITs

National Retail Properties (NNN) Yield 5.71%
Pennsylvania Real Estate Trust (PEI) Yield 4.87%
Corporate Office Properties Trust (OFC) Yield 4.85%
Weingarten Realty Investors (WRI) Yield 4.47%
Retail Opportunities Investments Corp (ROIC) Yield 4.29%
Source: CapitalIQ

We were looking for U.S.-based REITs with the following criteria:

  • Specializing in office, industrial, residential or retail
  • Market cap of more than $1 billion
  • 90-day return of 10 percent
  • Price to Book ratio of less than 2.0
  • Estimated quarterly cash flow of more than 10 percent

But with real estate in general looking like its recovering a bit, why buy REITs when you can buy actual buildings or homes?

“The REIT format gives you incredible diversification. Our properties are spread all over the country. Our tenant base is extremely diversified,” explained Alexander. “[REITs] also have liquidity that you can sell the stock at any time.”

With a $3 billion market cap, Weingarten Realty has more than 56 million square feet of leasable space across 22 states. The company’s top 10 tenants—which account for nearly 14 percent of revenue—include Kroger, Safeway, The Sports Authority, Best Buy, and Home Depot.

Watch “Street Signs” with Brian Sullivan and Mandy Drury on CNBC Monday-Friday at 2p Eastern Time.

  Price   Change %Change
MSCI US REIT IDX
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S&P 500
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AVB
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SPG
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WASH REALEST
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