Essex Property Trust Inc (ESS), Government Properties Income Trust (GOV), and Federal Realty Investment Trust (FRT): Watch These REITs

REITs come in all shapes and sizes and expose their investors to different types of investment properties and risks. REITs are required to pay out most of their earnings to investors and are taxed differently than other investments, so please consult a tax specialist before investing in a REIT. REITs paying out most of their income are supposed to help investors by making manage the company’s remaining capital better. Below, we will take a look at three REITs that support three different sectors of the economy. Essex Property Trust Inc (NYSE:ESS), Government Properties Income Trust (NYSE:GOV) and Federal Realty Investment Trust (NYSE:FRT) each have a different flavor of real estate, and each comes with their own strengths and weaknesses.

Essex Property Trust Inc (NYSE:ESS)Multi-Family Housing

Essex Property Trust Inc (NYSE:ESS) is one of the largest developers and operators of apartment communities with over 163 communities and nearly 34,000 individual units. Essex Property Trust Inc (NYSE:ESS) truly has its fingers on the pulse of the rental market. This model was a winning combination for Essex Property Trust Inc (NYSE:ESS) during the financial crisis. When millions of homeowners turned to rentals as they were foreclosed on Essex Property Trust Inc (NYSE:ESS) saw occupancy rates in the mid-nineties. As we see the housing market pickup again, we will see pressure put back on rental rates in some markets that Essex Property Trust Inc (NYSE:ESS) operates in and could squeeze margins.

Essex currently has operating margins of 34.2% and sports a dividend of 3.1%. Essex has reported double-digit revenue growth for the past four quarters, increasing an average of 26.5%. REITs are generally fuelled by debt, so the low interest rate environment that we are in is a double edged sward for Essex. On one hand, Essex’s tenants may be encouraged by low interest rates to stop renting and own their own home. Whereas, on the other hand Essex can use the low interest rates to build out more apartment communities and boost shareholders returns without issuing more stock.

Government Rentals

Government Properties Income Trust (NYSE:GOV) is a real estate investment trust that owns more than 70 properties in 29 states and the District of Columbia, with over 9 million rentable square feet. Government Properties Income Trust (NYSE:GOV) leases nearly 70% of its rentable space to the US Federal Government, 18% to state governments and 2% to the United Nations. Government Properties Income Trust (NYSE:GOV) was under scrutiny this past spring when the sequester put all government spending under fire. This was a knee jerk reaction by investors. Government Properties Income Trust (NYSE:GOV) rents most of its space to essential government functions like the Internal Revenue Service.