Real estate investment trusts can hold properties in a wide variety of sectors; several MoneyShow.com contributors highlight their favorite ideas in hotels, data centers, healthcare facilities and multi-family properties. Also included is a landlord for marijuana growers and a residential REIT that focuses on environment, social and governance (ESG) friendly investments.
Park Hotels & Resorts Inc. was formed in January 2017 when Hilton HLT -0.88%Worldwide spun off most of its owned real estate into a separate public REIT. Park Hotels is the second largest publicly traded lodging REIT, with a diverse portfolio of 54 premium-branded hotels and resorts with significant underlying real estate value and over 32,000 rooms, primarily in key U.S. markets with high barriers to entry.
The company’s top 10 hotels account for about 70% of earnings, including the Hilton Hawaiian Village Waikiki Beach Resort, New York Hilton Midtown, Hilton San Francisco Union Square/Parc 55 San Francisco – a Hilton Hotel, Hilton Waikoloa Village, Hilton New Orleans Riverside and Hilton Chicago.
Last month, the company completed the sale of the joint venture Hilton Berlin in Germany, with Park’s share approximately $140 million. It was the 13th hotel Park has sold this year and the 10th international market property, as Park recycles capital out of non-core assets and reduces exposure to non-U.S. markets and joint venture interests. Park now has ownership in four hotels outside the U.S.
First quarter 2018 comparable RevPAR (revenue per available room) was $165.57, an increase of 1.1% from the same period in 2017. AFFO was $137 million, a decrease of 0.7% over 2017. Park’s sale of 12 hotels for $379 million (gross) went toward repurchasing and retiring 14 million shares of common stock from an affiliate of Chinese conglomerate HNA Tourism Group.
Park Hotels & Resorts has an attractive and well-covered dividend and will issue a special cash dividend of $0.45 per share next month (totaling about $90 million), from the sale of the Berlin property. Park represents one of the best lodging REITs, especially given the association with Hilton.
Periodic bouts of red ink, or larger declines like 10% corrections and even 20% bear markets, are a normal part of the investment process. So, we hardly think the current environment is any more troubling than what we have endured throughout our 41 years of publishing our newsletter.
We do not mean to sound cavalier, but there is almost always something to worry about, yet equities have proved extraordinarily rewarding for those who remember that the secret to success in stocks is not to get scared out of them. Meanwhile, two of our latest recommendations are real estate investment trusts.
Digital Realty Trust DLR +0.78% is an owner and manager of technology-related real estate. The data centers are located throughout the U.S. and England, along with Europe, Asia and Australia, and host critical infrastructure for clients of all sizes.
With its 205 data centers in 32 markets, DLR offers customers a robust global ecosystem that utilizes more than 1,000 telecom providers, ISPs, content providers and enterprises to provide carrier-neutral interconnection facilities.
We believe that the build-out of cloud infrastructure around the world creates growing demand for Digital Realty Trust’s offerings, as major technology companies like Microsoft MSFT -0.67% work to deploy their cloud-based applications and services.
With DLR uniquely positioned to benefit from this growth, analysts expect 2018 funds from operations (FFO) of $6.52 per share (vs. $6.14 for 2017). The stock also has a 3.6% dividend yield.
Physicians Realty Trust is a small-cap healthcare REIT that acquires, owns and manages healthcare properties that are leased to physicians, hospitals and healthcare delivery systems, and other healthcare providers. Its properties are typically on a campus with a hospital or strategically located and affiliated with a hospital or physician organization.
Shares are off more than 20% from their recent highs, with rising interest rates and capital raises (via stock issuance) taking a toll. We are positive on the name and like that physician group and health system consolidations in outpatient facilities have been keeping operating fundamentals for the company strong.
We favor the expertise and experience of the management team, the favorable demographic trends (e.g. 20% of the U.S. population is projected to be older than 64 before 2030), as well as the continued focus on leveraging its physician and hospital relationships nationwide to invest in off-market assets that maximize returns to shareholders.
Of its 13.6 million square feet of leasable space, almost 97% is filled with a weighted average lease term of 8.2 years. The dividend yield is north of 5.8%.
Equity Residential EQR +0.25% is a multifamily residential property REIT, which is all about apartments in high-density urban markets like New York, Boston, Los Angeles, San Francisco, Seattle and Washington, DC. This is a great company. Its key competitive edge lies in its ability to plan and build new developments in burgeoning markets where demand is strong.
Wherever the median home price is a significant and unaffordable multiple of the median household income, Equity Residential sees a strategic opportunity. That’s a big factor in an era when headlines commonly note that minimum wage workers are unable to find housing anywhere in the country.
For example, in Los Angeles, one of Equity Residential’s most favored markets, the median home price is $470,000, and the median household income is $55,000.
That’s an 8.5x multiple, which means it’s extremely difficult for Los Angelenos to purchase homes under normal mortgage underwriting limits, that restrict loan amounts to just two or three times income. And when people can’t buy, they need to rent.
All of this translates into persistent growth. Funds From Operations, a key metric for real estate stocks, edged up 1% last year and is on track to climb as much as 4% in 2018. After all, this is a company that knows how to invest capital.
Equity Residential recently trimmed debt from its balance sheet to a mere 35% of total assets, earning an A- credit rating from both S&P and Fitch. In an industry that tends to lever itself to the moon, an A- credit rating signals management’s conservative approach to financing, which should make dividend investors extremely happy.
In fact, the company’s currently pays 62% of its income back to shareholders, which implies room to raise the dividend going forward. And let’s not forget about the $1.8 billion in liquidity that Equity Residential is currently sitting on, thanks to a $2 billion revolving line of credit; plenty of room to maneuver should they wish to acquire or expand via increased development.
And speaking of management, Equity Residential has one of the best in the business, led by industry legend Sam Zell. Zell founded the company in 1993 and over the past 25 years he’s steered his company through bust and boom times alike. And Zell’s top executives have all been with the company for at least 20 years apiece.
That’s exactly the type of management structure we love to bank on. As the REIT market continues to rebound from the weakness, which occurred at the start of the year, expect Equity Residential to break out as a top performer in its peer group.
AvalonBay Communities AVB +0.34% is one of several real estate investment trusts that have penetrated the ranks of the environment, social and governance (ESG) friendly. It is geographically diverse, boasting apartment communities in the Northeast, Mid-Atlantic, Pacific Northwest, and Northern and Southern California — and doing so across the Avalon, Eaves by Avalon and AVA brands.
As of the first quarter, AvalonBay owned or held interest in 288 apartment communities containing 84,162 apartment homes, and also had 18 communities under construction that should contain 5,774 apartment homes when completed.
How can a REIT be responsible? you ask? Well, the company itself specifically points out that operating high-density housing helps “contribute to more efficient land use patterns,” but it also ensures that its properties effectively use energy, water and other resources.
To Read The Rest Of This Article By MoneyShow Contributor on Forbes
Published: July 19, 2018
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