Two major REITs merged this week. Does this signal upcoming changes in the sector?
REITs can add real estate to your portfolio. Because who wants to deal with tenants directly? Two major Real Estate Investment Trusts (REITs) merged this week, American Capital Reality Properties (ARCP) and Cole Real Estate Investments Inc. (COLE).
Both fit into the same niche, so-called net-lease investment trusts, which means they own property leased to single, large tenants like Walgreens (WAG) or McDonald’s (MCD). Combined, they will easily create the largest security in the sector.The deal is said to be worth over $7 billion. The new REIT would control almost 4,000 properties This creates a combined enterprise value of over $21 billion.
The two REITs, once the second and third largest, will dwarf what is now the second largest trust, Reality Income Corp (O) by a factor of two.
REITs are an interesting breed of securities. They are traded on public exchanges, but aren’t necessarily companies - they don’t make anything. The best way to explain REITs is to say they’re a kind of mutual fund for real estate interests. They buy land and developments, and then either re-sell them after renovations or lease them out to tenants.
Since they’re sort of like corporate landlords, REITs are carefully regulated with regards to profit. By law, 90% of their margins must be redistributed to shareholders. So it’s easy to see why REITs have become highly popular in the last few years – and they often pay very high dividends.But the merger speaks to some new problems REITs might soon face. As securities, their share price is susceptible to a number of factors.If unemployment goes down, some REITs stand to benefit as more people can afford to buy or rent larger homes. On the flip -side, low unemployment is likely to lead to faster tapering from the Fed, and with that comes higher interest rates.
If that happens REITs holding mortgages (mREITs) or ones that are diversified could be in trouble as well. Some analysts are even advising that you avoid the sector all together. To shed some light on this volatile, befuddling, yet often lucrative sector – we ran a screen on the full universe of REITs.
We looked at them regardless of sector, and instead limited our results by size and dividend payout. Larger securities are often better equipped to handle a crisis. So we looked for large-cap REITs with dividend yields of at least 3%.
We were left with 5 REITs on our list.
Click on the interactive chart to see dividend yields over time.
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Do you see REITs as a good way to invest in real estate? Use the list below as a starting point for your own analysis.
1. Avalonbay Communities, Inc. (AVB, Earnings, Analysts, Financials): Engages in the development, redevelopment, acquisition, ownership, and operation of multifamily communities in the United States. Market cap at $17.14B, most recent closing price at $132.71.
2. Health Care REIT, Inc. (HCN, Earnings, Analysts, Financials): Engages in investment, development, and management of properties. Market cap at $17.6B, most recent closing price at $64.45.
3. HCP, Inc. (HCP, Earnings, Analysts, Financials): An independent hybrid real estate investment trust. Market cap at $19.13B, most recent closing price at $42.07.
4. Annaly Capital Management, Inc. (NLY, Earnings, Analysts, Financials): Engages in the ownership, management, and financing of a portfolio of investment securities. Market cap at $11.1B, most recent closing price at $11.72.
5. Vornado Realty Trust (VNO, Earnings, Analysts, Financials): Vornado Realty Trust is a privately owned real estate investment trust. Market cap at $16.59B, most recent closing price at $88.74.
(List compiled by James Dennin. Dividend yields sourced from Zacks Investment Research, all other data sourced from Finviz. Original article published on 10/24/13.)
Analyze These Ideas: Getting StartedRead descriptions for all companies mentioned Access a performance overview for all stocks in the list Compare analyst ratings for the companies mentioned Compare analyst ratings to annual returns for stocks mentioned Real-Time Opinion: Scan the latest tweets about these companies (feed will open in a new window)
Dig Deeper: Access Company Snapshots, Charts, FilingsAvalonbay Communities, Inc. (AVB, Chart, Download SEC Filings) Health Care REIT, Inc. (HCN, Chart, Download SEC Filings) HCP, Inc. (HCP, Chart, Download SEC Filings) Annaly Capital Management, Inc. (NLY, Chart, Download SEC Filings) Vornado Realty Trust (VNO, Chart, Download SEC Filings)
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