This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

REITS: How to Play It

NEW YORK (TheStreet) -- Investors considering real estate investment trusts need to gauge a REIT's payout ratio as well as the prospects for commercial real estate in an uncertain economy.

Two of the names featured in TheStreet's 10 A-Rated Mid-Cap Dividend Stocks are REITS, including Urstadt Biddle Properties (UBA) of Greenwich, Conn. and National Health Investors (NHI) of Murfreesboro, Tenn.

Considering the Payout Ratio

A REIT's net income, calculated by generally accepted accounting principles (GAAP) is not generally considered the best indicator of cash flow and the ability to cover dividend payouts, since it includes non-cash items such as straight-line depreciation of improved properties and amortization.

For Urstadt Biddle Properties, net income applicable to common shareholders for the third fiscal quarter ended July 31 was $4.5 million, or 18 cents per Class A share, while the dividend payout on the shares was 24.25 cents a share. At first glance, an investor might think the company is paying out more than it earns.

REITs commonly use another earnings measure called funds from operations, or FFO, which is defined by the National Association of Real Estate Investment Trusts as GAAP net income, "excluding gains (or losses) from sales of properties plus real estate related depreciation and amortization and after adjustments for unconsolidated joint ventures."

Urstadt Biddle's FFO for the fiscal third quarter was $8.5 million, or 34 cents per Class A share, which more than covered the dividend. For the four quarters ended July 31, FFO totaled $28.9 million or $1.16 per Class A common share while the dividend payout was 97 cents a share, which leaves a back-of-the-envelope payout ratio of 84%.

For National Health Investors, second-quarter net income was $19.2 million or 69 cents a share, while FFO was $19.9 million, or 72 cents a share, exceeding the dividend of 60.5 cents a share that will be paid on September 30. FFO per share for the four quarters ended June 30 was $2.77 while dividends totaled $2.35 per share, for a payout ratio of 85%.

Of course, there are other factors for investors to consider besides the ability to cover dividends. One area is revenue growth. For Urstadt Biddle, total revenue for the third fiscal quarter ended July 31 was $63.5 million, an increase of 1% from a year earlier. For National Health Investors, second-quarter total revenue was $19.2 million, increasing 31% year-over-year.

Shares of Urstadt Biddle Properties closed at $18.54 Friday, returning 28% for the previous 52 weeks assuming reinvested dividends. National Health Investors closed at $46.06, for a 50% return over the previous year.

With both companies supporting their attractive dividend payouts and trading near the top of their 52-week price ranges, income-seeking investors considering these REITs need to consider each company's real estate portfolio.

Urstadt Biddle mainly holds shopping centers, office buildings and industrial properties in Connecticut, New York and New Jersey, while National Health Investors owns or holds mortgages on over 100 healthcare facilities in 21 states. Both portfolios have performed well, considering the overall economic weaknesses, but the market has clearly favored NHI over the past year.

RELATED STORIES:



-- Written by Philip van Doorn in Jupiter, Fla.



>To contact the writer of this article, click here: Philip van Doorn.

>To follow the writer on Twitter, go to http://twitter.com/PhilipvanDoorn.

>To submit a news tip, send an email to: tips@thestreet.com.

Philip W. van Doorn is a member of TheStreet's banking and finance team, commenting on industry and regulatory trends. He previously served as the senior analyst for TheStreet.com Ratings, responsible for assigning financial strength ratings to banks and savings and loan institutions. Mr. van Doorn previously served as a loan operations officer at Riverside National Bank in Fort Pierce, Fla., and as a credit analyst at the Federal Home Loan Bank of New York, where he monitored banks in New York, New Jersey and Puerto Rico. Mr. van Doorn has additional experience in the mutual fund and computer software industries. He holds a bachelor of science in business administration from Long Island University.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,070.57 +91.44 0.54%
S&P 500 1,993.45 +6.94 0.35%
NASDAQ 4,531.1980 +4.7160 0.10%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs