In the last two months, the 10-year yield on the 10-year treasury has gone from 1.6% to 2.6%. This rise in interest rates has caused most real estate investment trusts (REITs) to post declines over the same time period, providing better entry points for income investors looking to add some real estate to their portfolios. Here are three unique REITs that could provide you with reasonable valuations, high yield, and good growth prospects.
A Bakken Play
Investors Real Estate Trust (NYSE:IRET) owns a diversified portfolio of income producing properties. The company’s multifamily residential, office, medical, industrial, and retail properties are located in 12 states, primarily in the Upper Midwest. It has just under $2 billion worth of properties under management. This REIT also has a very healthy dividend yield of 5.7%.
Investors Real Estate Trust (NYSE:IRET) is selling at just over 12 times next fiscal year’s projected FFO, or funds from operations — the REIT equivalent of what earnings represent for equities. Investors Real Estate Trust’s multiple is a slight discount to larger competitors like Apartment Investment and Management Co. (NYSE:AIV), at 13.2 times 2014’s projected FFO, and Equity Residential (NYSE:EQR), at 17.6 times 2014’s projected FFO. Investors Real Estate Trust also provides a much higher dividend yield than either of those rivals.
This REIT also has other several attractive features. The regions of the country in which the company’s property portfolio is situated are growing faster than the country as a whole. The company has several new properties coming online in North Dakota, where 18% of its portfolio already sits. The economic and job boom happening near the Bakken shale region should provide a significant tailwind to real estate appreciation and strong occupancy rates. It also has a large presence in Minnesota, with multiple medical real estate facilities that are over 94% leased. Finally, the company has a clean balance sheet with a weighted average interest rate on its overall debt is under 6%.
An Affordable Care Act Winner
Healthcare Trust of America Inc (NYSE:HTA) is a real estate investment trust that focuses on medical office buildings and healthcare-related facilities. The company should benefit since approximately 25 million to 30 million more individuals will be covered by insurance after the Affordable Care Act is fully implemented. This will drive additional demand for medical visits and services especially on an outpatient basis. This, in turn, will increase demand for the medical office space that Healthcare Trust owns and operates. The aging of the domestic population will continue to provide a tailwind for demand as well.
This REIT offers a generous 5.2% yield. Revenues are growing in the 3% to 5% range currently, but the rate of growth should increase in coming years. The low amount of medical office facility construction over the past few years due to financial crisis, combined with the new demand outlined above, should lead to larger increases in leasing rates in the years ahead. In addition, the company’s property portfolio is currently 91% leased, but should experience higher occupancy rates in the years ahead as demand increases as well.
An Unusual REIT
EPR Properties (NYSE:EPR) is a geographically diversified, specialty real estate investment trust (REIT) that invests in properties in select categories which require unique industry knowledge. These properties include cineplexes, charter schools, and ski areas.
Because the company acquires and operates properties in niche markets, it faces less competitive bidders than it would if it was bidding for more traditional real estate assets such as office buildings or multi-family housing. The equity has fallen some $10 a share over last few months as interest rates have risen, and it now provides an attractive entry point.