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TheStreet Open House

2 Strong REITs With Wal-Mart as Tenant

Stocks in this article: WMT DDR KIM

NEW YORK ( TheStreet) -- Wal-Mart (WMT - Get Report) is the world's largest retailer, operating 3,029 supercenters (includes sizable grocery departments), 629 discount stores, 611 Sam's Clubs and 210 Neighborhood Markets in the U.S., plus 5,651 foreign stores, mainly in Latin America, with the balance in Asia, Canada and the U.K.

With a total store space of around 1.037 billion square feet, Wal-Mart continues to dominate the retail category and even with the threat of Amazon, the "brick and mortar" giant continues to dominate the sector. When Wal-Mart makes a decision to open new stores at a higher growth rate than the year before, investors should take note.

The success of Wal-Mart's platform is attributed to the mere number of transactions -- around 200 million transactions a week or 10.4 billion a year. When Wal-Mart decides to open new stores, at a higher growth rate than the year before, investors should pay close attention to the trends -- especially when there are two years of sustained and increased growth.

As a REIT investor, I also pay attention to store growth and closer attention to the landlords that lease to the retail giants. It is no coincidence that the shopping center sector is one of the top performing sectors. So far this year the shopping center sector has produced average total returns of 22.01%. That is second only to the regional mall sector that has returned around 25.11% this year (source: NAREIT as of July 31).

Having strong anchor tenants in a shopping center is critical. By leasing to a recognizable anchor like Wal-Mart, REITs are often able to attract other strong tenants and build a repeatable source of income for investors. I have identified two REITs that have shown strong performance this year and have considerable property leased to Wal-Mart.

DDR (DDR - Get Report), based in Beachwood, Ohio, has a market cap of $4.562 billion and a current dividend yield of 3.2 percent. The company has more debt than many of its peers; however, the REIT has been focusing on non-core assets and recycling into higher-quality properties. The debt to market cap is 45.95% (was 55.24% in the third quarter of 2011) and the company has reduced overall debt from $5.54 billion (in 2007) to around $4.095 billion (second quarter of 2012).

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