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Hedge Funds’ Most-Favored REITs This Quarter

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Real estate investment trusts (REITs) should reside the equity portfolio of each long term-oriented investor. As a general rule, investors of all types are mostly attracted by REITs mainly because of their tendency to provide relatively high levels of current income and offer strong opportunities for long-term capital appreciation. In fact, REITs seem to resemble the “perfect” type of stock, which provides both current income in the form of dividends and long-term capital appreciation. Analysts at some top-tier investment banks believe that REITs will enjoy strong returns in the upcoming year, mainly because of limited new supply across the United States, robust economic growth, as well as attractive valuations. Although REITs tend to generate lower returns than high-growth stocks, their dividend payments are usually quite solid thanks to the stable and somewhat predictable revenue streams obtained from various types of “tenants”. Nonetheless, investors should not overlook a possible rising interest rate environment, which could put downward pressure on REITs given their capital-intensive nature. That being said, the following article will lay put a list of five REITs favored by the hedge fund vehicles monitored by Insider Monkey.

At Insider Monkey, we track around 730 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).

#5 Vereit Inc. (NYSE:VER)

– Hedge Funds with Long Positions (as of December 31): 35

– Value of Hedge Funds’ Holdings (as of December 31): $1.33 Billion

There were 35 hedge funds from our system with stakes in Vereit Inc. (NYSE:VER) at the end of December 2015, down from 44 registered at the end of the prior quarter. It is not surprising that the smart money industry was jettisoning their REIT holdings during the fourth quarter, considering that the Federal Reserve raised interest rates for the first time in almost a decade during that quarter. Vereit is a full-service real estate operating company that primarily generates income from its diversified portfolio of 4,435 retail, restaurant, office and industrial real estate properties. The REIT’s funds from operations (FFO) totaled $585.2 million for 2015, which increased $436.1 million year-on-year. As REITs are mostly judged by their FFO metrics, Vereit appears to have had a great 2015. Just recently, analysts at BMO Capital Markets upgraded Vereit to ‘Outperform’ from ‘Market Perform’ and raised the price target on the stock to $10.50 from $10. Shares of Vereit are 7% in the red year-to-date. At the end of February, the company’s Board of Directors declared a quarterly dividend of $0.1375 per share, which denotes a current dividend yield of 6.55% for the stock. Larry Robbins’ Glenview Capital trimmed its stake in Vereit Inc. (NYSE:VER) by 23% during the December quarter to 17.37 million shares.

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