My favorite mall REIT is Tanger Factory Outlets (SKT), the only "pure play" outlet REIT that has an enviable track record of paying and increasing dividends for 20 years in a row.
The Shopping Center REITs now number nineteen as Brixmor Property Group (BRX) listed shares on the NYSE on Oct. 30. Brixmor raised over $800 million in equity by monetizing 522 shopping centers and 87 million square feet.
For the year to date, the shopping center REITs have returned 11.87% and the average dividend yield for the sub-sector is 3.61%, according to NAREIT. The shopping center REITs with a combined market capitalization of around $48 billion is around half the size of the mall sector at $87 billion.
Two of the best values in the shopping center sector are both San Diego-based REITs: Excel Trust (EXL) and Retail Opportunity Investment Trust (ROIC). Excel operates from California to Virginia and has a necessity-based strategy of renting to major retailers like Lowe's and TJ Maxx (TJX) while ROIC focuses on the west coast and pursues a value add strategy of acquiring high-quality assets at distressed prices.The triple net REITs (also referred to as freestanding) have ballooned into a core sector that now includes companies that represent more than 21% of the FTSE NAREIT All Equity REITs Index based on equity market cap (up from 15.5% in 2010). Given the volume of capital entering the space, the triple net REITs have mushroomed in size to around $26 billion based on market cap. One of the best values today in the triple net sector is Realty Income (O), better known and the "Monthly Dividend Company." The Escondido-based REIT has paid and increased dividends for 19 years in a row and the current share price ($38.78) is most attractive (the P/FFO multiple is 16.2x). Two other holiday picks include Chambers Street Group (CSG) and Monmouth Real Estate (MNR). Chambers Street should benefit from the five large box facilities that it leases to Amazon (AMZN) and Monmouth should prosper with its roughly 50 percent concentration with major transportation company, FedEx (FDX). Another interesting tidbit, Monmouth leases a facility in New Jersey that houses the Christmas parade for Macy's. One of the best ways for a value investor to sleep well at night is to focus on fundamentals. That means that you must ignore the drama associated with the crowd and maintain a laser-focus on earnings - or in REIT-dom we define that as funds from operations (or FFO). Most importantly, an intelligent investor should study the safety of the dividend stream and determine whether there is a buffer in price to protect against market fluctuations. Happy Holidays, and remember that I only have two requests. One is to protect your principal at all costs and the second is all I want for Christmas is a few good REITS. Good luck. At the time of publication the author had a position in ARCP, CSG, CBL and O. Follow @swan_investor This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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