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Intelligent REIT Investing: Rock, Paper, Scissors

NEW YORK ( TheStreet) -- My kids love to play rock, paper, scissors. You know how it works: Rock beats scissors, and paper beats rock, and scissors beats paper. There are no tie-breakers, and there is always a winner.

That same principle applies to REIT investing. There are the primary asset sectors of housing, office, retail and industrial. All of these sectors provide needed space for their occupants, and some are considered better than the others at different moments.

As we all saw, during the great recession, necessity-driven sectors were in highest demand. Core survival-based categories of food, shelter and clothing became more relevant for investors, as their fixation on sustainable income and dividends became critically important.

Conversely, successful investors learned that the strongest sources of differentiation are found in those companies with the most sustainable business models, built on repeatable sources of income.

Investing in Food, Shelter and Clothing

They are also found in the form of food, shelter and clothing. These necessities are defined by their pure survival attributes, in which the sources of income are derived from routines, behaviors and activities that are relevant for sustainable investment differentiation.

In REIT-land there are some exceptional REITs that derive their competitive advantages from these necessities. These REITs provide value by providing space in a manner that lets them serve their core customers better and more profitably.

The Food REITs

I have five kids in my house, and we all love food. Of course, we eat a lot of food and, with a growing family, are all frequent customers at the neighborhood Target and Publix.

Several retail REITs have built repeatable income strategies on renting space to leading grocery chains, such as Regency Centers (REG - Get Report) and Weingarten Realty Investors (WRI - Get Report). Regency has a portfolio of 354 properties with a market capitalization of $4.44 billion. The Jacksonville-based REIT trades at $49.38 per share and has a current dividend yield of 3.75%. Weingarten, based in Houston, has around 316 properties, a market cap of $3.38 billion and dividend yield of 4.17%.

The Shelter REITs

As reported by Chilton Capital Management, "low supply, single-family home foreclos¬ures, and stringent mortgage requirements have driven high occupancy [for apartment REITs], which has given landlords pricing power. The occupancy rate, which has averaged right above 95% over the past four years, has aided landlords in pushing rents."
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CPT $81.68 -0.75%
ESS $223.52 0.26%
SKT $35.54 -0.14%
REG $75.15 0.08%
WRI $37.78 0.27%


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