NEW YORK (
) -- Real estate investment trusts, or REITs, have been some of the hottest stocks in 2010 with money pouring into the sector when the much-feared crisis in commercial real estate failed to materialize.
Year-to-date the group is up roughly 20%, compared to an advance of 1.6% for the blue-chip
Dow Jones Industrial Average
so far in 2010.
Steve Shigekawa, a managing director at Neuberger Berman, feels the fundamental outlook for REIT's is still improving. "The historically low levels of new supply combined with an improvement in demand make for a potential for increasing cash flows in 2011", says Shigekawa.
He also points out that, with bond yields still so low, REITs are an attractive alternative to fixed income. There's also the possibility that REITs will increase dividends next year. When looking for the highest quality REIT, Shigekawa looks for an experienced management team, a strong balance sheet and high quality assets.
Here are Shigekawa's favorite REIT stocks and target prices uncovered by
Vornado Realty Trust
owns a diversified portfolio mainly in New York City and Washington D.C., which are the two best performing office markets in the country.
The stock plunged during the crisis to the high 20s in March 2009 but it's now residing in the mid 80s. The company just announced plans to build the biggest building in New York City, causing a mini-controversy after the Empire State Building complained.
But the city council looked at the jobs the building would bring and its proximity to mass transit and bent the zoning rules to allow the plans to go forward. Argus Research says take profits near $100.
is a best-in-class office company that owns high quality CBD
central business district assets in New York, Washington D.C., Boston and San Francisco.
BXP is sitting on a large cash cushion ready to take advantage of improving market conditions. As of June 2010, it had $1.7 billion in unrestricted cash. Year-to-date the stock is up 28%, having jumped from lows in the mid 30s to its current levels in the mid 80s. Argus Research sees the stock going to $95.
, the largest self storage REIT, has one of the best balance sheets in the industry and is well positioned to make opportunistic acquisitions, Shigekawa says.
Exposure to Europe caused the stock to pull back during the summer, but that didn't last long. The stock has thrived in the past 18 months, more than doubling off March '09 lows of $48 to trade above $100. Argus Research has a target price of $112.
, the largest hotel REIT, should benefit from exposure to the luxury and upper-upscale segments of the market where improvement is strongest.
Hotels.com said hotel room rates rose 2% in the second quarter of 2010. Host's portfolio includes high-end names like the Ritz-Carlton and Hilton Hotels. The luxury traveler seems to have rebounded faster than the mid-range traveler. Year-to-date the stock has run up 23%, but Argus Research believes it can reach $20 from its current level in the mid teens.
Written by Debra Borchardt in New York.
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