5 REITs to Rally on Home Sales (Corrected)

(This article, originally published Dec. 7, 2011, has been corrected to remove a reference to unconfirmed plans for investments by Alexandria Real Estate Equities. TheStreet regrets the error.)

NEW YORK ( TheStreet) -- U.S. commercial real estate is expected to stabilize and perform better going forward. Cautiously optimistic about the modest economic growth and job creation, Lawrence Yun, chief economist of National Association of Realtor, predicts that the overall drop in vacancy rates, softer leasing and concessions could continue to make it into a tenant's market.

Fitch Ratings has affirmed a stable outlook for multifamily, office, industrial and retail REITS in 2012, and has assigned a positive outlook for health care REITs.

Pending Home Sales Index rose 10.4% in Oct. to 93.3 from 84.5 in the prior month. Regionally, pending home sales increased in the midwest by 24.1%, northeast by 17.7%, and in the south by 8.6% in October. New home sales are likely to top 5 million in November from 4.97 million in October, according to the median forecast of analysts surveyed by Bloomberg.

Related: 5 Heavily Shorted REITs That Could Pop

The Mortgage Bankers Association's research shows that loans issued in the three months from July to September 2011 in the commercial and multifamily market rose by 98%, vs. the same period in 2010.

Analysts estimate that these five REITs have potential upsides ranging from 9% to 19%, based on latest quarterly results. Among analysts covering these stocks, an average of 72% have buy recommendations, according to data provided by Bloomberg.

The stocks are listed in ascending order of upside potential.

5. Simon Property ( SPG) is the largest real estate company in the U.S. with a market cap exceeding $36 billion. The company owns and has interests in 392 properties comprising 262 million square feet of gross leasable area in North America, Europe and Asia, including regional malls, Premium Outlets, The Mills, community/lifestyle centers and international properties.

Of the 25 analysts covering the stock, 68% recommend a buy and 28% suggest a hold. Analysts' average 12-month price target for the stock is $133.31, about 8.5% higher than the current price, according to a Bloomberg consensus.

The company reported total revenue of $1.07 billion for 2011 third quarter, up 9.18% from $979 million for the same quarter in the previous year. Net income attributable to common stock holders was $274 million, or 93 cents per diluted share, compared to $230.6 million, or 79 cents, in the prior-year period.

On Nov. 30, the company paid a quarterly dividend of 90 cents per share, an increase of 12.5% from the previous quarter. It will pay a special common stock dividend of 20 cents per share on Dec. 30 to stockholders of record Dec 16.

Simon recently announced that, in partnership with Genting Berhad, it has opened Johor Premium Outlets, its first Premium Outlet Center in Southeast Asia. Simon and Woodmont Outlets and EWB Development have signed a joint venture agreement for the development, construction, leasing and management of St. Louis Premium Outlets, an upscale outlet center in Chesterfield, Missouri. Simon will own 60% of the project.

The company affirms its guidance on 2011 funds from operations of $6.80 to $6.85 per diluted share, with net income between $3.00 and $3.05 per share.

4. Two Harbors Investment ( TWO) operates as an REIT that focuses on investing in asset classes including residential mortgage-backed securities, residential mortgage loans and others. It has a market cap exceeding $1 billion. The company is managed and advised by PRCM Advisers, a wholly owned subsidiary of Pine River Capital Management.

Of the 12 analysts covering the stock, 83% recommend a buy and 17% rate a hold. Analysts' average 12-month price target for the stock is $10.59, about 11.3% higher than the current price, according to a Bloomberg consensus.

For 2011 third quarter, Two Harbors reported net income attributable to common stockholders of $54.6 million, or 42 cents per diluted share, compared to $9.9 million, or 28 cents per diluted share, in the same quarter prior year. The company's portfolio of residential mortgage-backed securities generated an aggregate yield of 5.5%, driven by non-agency portfolio performance of 9.8% in the third quarter of 2011 as compared to 8.8% in the previous quarter.

The company paid quarterly dividend of 40 cents per common shares on Oct. 20. Its board of directors has authorized the repurchase of up to 10 million shares of common stock.

3. Alexandria Real Estate Equities ( ARE) offers real estate and related services to the life science industry. The company has a market cap exceeding $4 billion. It had 171 properties aggregating gross rentable area of approximately 14.9 million square feet, as of Oct. 25.

Of the 15 analysts covering the stock, 73% recommend a buy and 27% suggest a hold. Analysts' average 12-month price target for the stock is about 14.3% higher than the current price at $77.17, according to a Bloomberg consensus.

The company reported total revenue of $143.4 million for the quarter ended Sept. 30, up 19.2% from $120.3 million in the same period prior year. Net income amounted to $32.9 million, up 8% from 430.4 million in the corresponding quarter earlier year. In the third quarter, the company executed 56 leases for 985,000 rentable square feet, including 458,000 rentable square feet of Redevelopment and Development Space -- the second highest single quarter of leasing activity in its history.

Alexandria recently declared a quarterly cash dividend of 49 cents per common share for the fourth quarter of 2011 payable Jan. 17, 2012 to shareholders of record Dec. 30, 2011.

The company recently broke ground for its $500 million Alexandria Center at Kendall Square in Cambridge, a 1.73 million s/f, 11-acre, build-to-suit science and technology campus.

2. Douglas Emmett ( DEI) is a fully integrated, self-administered and self-managed REIT with a market cap exceeding $2 billion. It is one of the largest owners and operators of office and multifamily properties in submarkets in Southern California and Hawaii. The company's office and multifamily properties are located in nine California submarkets.

Of the 16 analysts covering the stock, 63% recommend a buy and 31% rate a hold. Analysts' average 12-month price target for the stock is 18.4% higher than the current price at $21.39, according to a Bloomberg consensus.

Douglas Emmett reported total revenue of $144 million for 2011 third quarter. Net income attributable to shareholders was $3.4 million or 3 cents per diluted shares as compared to a net loss of $3.9 million or 3 cents in the same quarter last year. Cash and cash equivalents were $349.6 million at the end of the quarter, compared to $272.4 million at the end of December 2010.

For the quarter, funds from operations totaled $54.6 million, or 34 cents per diluted share. On Oct. 13, DEI paid quarterly cash dividend of 13 cents per common share, or 52 cents per common share on an annualized basis.

The company has raised its 2011 FFO guidance to be in the range of $1.35 to $1.37 per diluted share from $1.32 to $1.36 per diluted share. This guidance includes an estimated $10 million cost of terminating the $322.5 million interest rate swap expected during the fourth quarter of 2011.

1. Hersha Hospitality ( HT) is a self-advised REIT with a market cap exceeding $768 million. The company owns interests in 79 hotels totaling 10,689 rooms, primarily in major cities along the Northeast Corridor running from Boston to Washington, D.C.

Of the 14 analysts covering the stock, 71% recommended a buy and 29% suggest a hold. Analysts' average 12-month price target for the stock is $5.52, about 19.3% higher than the current levels, according to data compiled by Bloomberg.

For 2011 third quarter, HT reported total revenue of $80.8 million, up 17% from $69.1 million in the same quarter last year. Consolidated revenue per available room improved 8.3% to $127.40, vs. $117.64 in the prior-year period. The average daily rate for its consolidated hotels increased 6.9% to $157.94, while occupancy for the same grew 104 basis points to 80.66%.

The company paid quarterly cash dividend of 50 cents per series A and B preferred shares and 6 cents per common share and per limited partnership unit. The company sees 2011 total consolidated revenue per available room in the 7% to 8% range.

Through the third quarter, the company spent $2.7 million of the anticipated $4.5 million as development cost of a hotel redevelopment project, which is expected to complete by the end of the first quarter of 2012. Hersha has entered into an agreement to sell 18 non-core hotels for approximately $155 million and generate net cash proceeds of approximately $54.4 million from the sale.

Recently, the company announced a purchase contract to acquire the 263 rooms of Courtyard Miami Beach Oceanfront and an adjacent beachfront land parcel for $95.0 million.

>>To see these stocks in action, visit the 5 REITs to Rally on Home Sales portfolio on Stockpickr.

More from Stocks

Video: Here Is Why Carvana Isn't Worried About Amazon

Video: Here Is Why Carvana Isn't Worried About Amazon

Jim Cramer: Okta Is a Very Expensive Stock

Jim Cramer: Okta Is a Very Expensive Stock

Here's Why Tesla's Solar Shakeup Makes Sense

Here's Why Tesla's Solar Shakeup Makes Sense

Dow Rises for First Time in 9 Days, Oil Soars as OPEC Agrees to Boost Output

Dow Rises for First Time in 9 Days, Oil Soars as OPEC Agrees to Boost Output

BlackBerry CEO: Stock Price Should Be Higher, We Are Looking at M&A

BlackBerry CEO: Stock Price Should Be Higher, We Are Looking at M&A