Real estate investment trusts, or REITs, can be excellent investment choices for people seeking high dividends, strong long-term growth potential, and recession-resistance. However, the vast majority of REITs invest in a single type of property, which can be a turn-off to investors seeking to diversify. Here are five examples of diversified REITs that could add variety and income to your portfolio.
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Share prices and dividend yields current as of 3/30/2017.
5 top diversified REITs
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1. Washington REIT
Washington REIT (NYSE: WRE) owns and operates a variety of properties, all concentrated in the Washington, D.C. metropolitan area. The portfolio is composed of 19 office properties (48% of NOI), 16 retail properties (24%), and 14 multifamily properties (28%). For those who are familiar with the area, most of the company's properties are within the Beltway -- top locales include Alexandria, VA, southern Maryland, and Washington, D.C. itself.
The business model is pretty straightforward -- acquire urban assets with manageable lease-up risk, and redevelop properties to maximize rental potential. For example, the company is currently in the process of renovating one of its apartment properties, which it expects to complete by the end of 2018 and achieve 15%-17% stabilized returns on its investment. In addition, Washington REIT also develops properties from the ground-up, which is yet another way to create shareholder value.
2. Lexington Realty Trust
Lexington Realty Trust (NYSE: LXP) invests in single-tenant commercial properties, and currently has a portfolio of 199 properties located in 40 states, 96% of which are leased. The company has a focus on net-leased properties (mainly industrial and office), and this essentially means that tenants sign long-term leases with gradual rent increases agreed upon at signing. Tenants are then responsible for variable costs such as property taxes, building maintenance, and hazard insurance.
In a nutshell, Lexington Realty Trust simply finds a tenant and collects a steady, growing stream of rental income for years. In addition, no tenant represents more than 4% of Lexington's rental income, and the top 10 tenants include names like FedEx, Nissan, and Xerox, just to name a few.
3. SL Green Realty Corp
SL Green Realty (NYSE: SLG) focuses on New York City properties, and is actually the city's largest office landlord. The company owns (in full or in part) 127 Manhattan buildings and 30 suburban buildings in the surrounding area, and as is the case with many Manhattan buildings, SL Green's properties have a mix of office and retail space.
To be clear, office space is the company's main priority, but the retail side is certainly significant, comprising 14.6% of SL Green's rental revenue, and with long-term relationships with tenants like Nike and Nordstrom. In addition, the company also owns or has an interest in several residential properties with a total of nearly 4,200 units.
4. EPR Properties
EPR Properties (NYSE: EPR) invests in three types of properties -- entertainment, recreation, and education. The entertainment properties primarily include megaplex movie theaters, and recreation properties include ski parks, water parks, and golf complexes such as Top Golf. Education properties make up about one-fourth of the portfolio, and include public charter schools, private schools, and child care centers.
The entertainment and recreation properties are a good play on younger Americans' trend of spending more money on experiences (as opposed to simply buying things), and the spending trends indicate that spending on these activities has grown significantly as millennials have started to come of age.
The education properties represent perhaps the best long-term growth opportunity for EPR, as public charter school enrollment has grown at a 12% annualized rate for the past 15 years and there are still over a million students on charter school waiting lists. In fact, EPR estimates that charter schools alone represent a $2.5 billion opportunity for the company.
5. Vornado Realty Trust
Vornado Realty Trust (NYSE: VNO) is one of the largest REITs of any kind in the U.S., and has large portfolios in the New York City and Washington, D.C. areas, but is currently in the process of spinning off its D.C. assets in order to focus on NYC office and retail properties. In fact, Vornado is the number one operator of New York City street retail, with large presences in attractive areas such as Fifth Avenue, Times Square, and others.
The reasoning behind the NYC focus is simple. The city has strong population and job growth, and is visited by more than 60 million tourists annually. Also, the city has the most liquid and attractive real estate market in the U.S., according to Real Capital Analytics, and has a long history of strong performance. In fact, Class A NYC office properties have historically doubled in value roughly every 10 years.
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