By Michael Kaye, CFA
Real-estate investment trusts, or REITs, can benefit investors in two ways. Since they're shares of entities that hold real-estate assets, they can give a stock portfolio diversification. And for income investors, they also provide a
yield greater than what most other asset classes offer. "REITs have not only outperformed the broader market for the past three years but they have posted positive total returns in each year," notes Raymond Mathis, Standard & Poor's REIT equity analyst.
These trusts own and operate real estate, or hold mortgages on real estate, usually through various types of operating partnerships. The trusts serve a number of different needs and are typically categorized by the type of real estate operated. One appealing feature of REITs is that they own hard assets, and share prices are buoyed by the net asset value (NAV) per share. The NAV is the amount available to distribute to shareholders if a company were to liquidate its properties to private investors and pay back its debt.
One other way that investors benefit from REITs: They're exempt from corporate income taxes, and they're required to pay out 90% of taxable earnings in the form of dividends.
What are Standard & Poor's favorite ways to play REITs? We screened for those REIT issues ranked 4 STARS (accumulate) or 5 STARS (strong buy), meaning that S&P expects them to outperform the overall market over the next 6 to 12 months.
These seven names turned up:
S&P STARS Rank
Boston Property Group (BXP)
Chelsea Property Group (CPG)
Hospitality Properties Trust (HPT)
Simon Property Group (SPG)
Trizec Properties (TRZ)
Vornado Realty Trust ( (VNO)
Weingarten Realty (WRI)
Kaye is a portfolio services analyst for Standard & Poor's