REITs: An Attractive Alternative to Stocks and Bonds?

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Real Estate Investment Funds (REITs) are being considered as a savvy alternative investment to stocks and bonds. The idea is fueled by low interest rates and an "improving job picture," reports CNBC.

REITs invest in many sectors, from office buildings to homes, hospitals, and hotels. They are tradable on the stock exchange and required to distribute 90% of taxable income to investors through dividends.

The new job growth is helping the industry not by creating new demand so much as filling the current vacancies enough to increase rent rates.

Altogether REITs have so far underperformed stocks this year, they "face strong prospects going forward as the two critical factors [jobs and interest rates] propelling the commercial real estate market continue to take hold."

Data points
So far, the MSCI REIT Index has gained about 6.5% in 2012 after rising 8.7% in 2012. According to the National Association of Real Estate Investment Trusts, industrial REITs have done best, gaining 15.5%, followed by hotels at 11.4% and shopping centers around 11% (via CNBC).

"The $200 billion U.S. REIT market doesn't face quite the same challenges as stocks and bonds, and offers an attractive dividend at about 3.6 percent industrywide."

On Wednesday, the Standard & Poor said REITs should perform better than home builders in 2012. Then the National Association of Home Builders announced it hit its highest sentiment level since May 2007.

Business section: Investing ideas
Do you think REITs will realize all of the bullish projections in 2012?

If you're interested in exploring REITs for your portfolio, we created a starting point for your analysis. We started with a universe of REIT companies and screened them for the bullish backing of institutional buyers, like hedge funds and company insiders. Both of these groups have more market and company information than the average investor, so their bullishness is something to take note of.

Do you agree with their bullishness? (Click here to access free, interactive tools to analyze these ideas.)

1. DDR Corp.: Operates as a real estate investment trust (REIT) in the United States. REIT-Retail Net institutional purchases in the current quarter at 8.8M shares, which represents about 4.17% of the company's float of 211.28M shares. Over the last six months, insiders were net buyers of 117,357 shares, which represents about 0.06% of the company's 211.28M share float

2. Two Harbors Investment (NYS: TWO) : Operates as a real estate investment trust (REIT) that focuses on investing in, financing, and managing residential mortgage-backed securities (RMBS) and related investments. REIT-Residential Net institutional purchases in the current quarter at 22.1M shares, which represents about 16.65% of the company's float of 132.73M shares. Over the last six months, insiders were net buyers of 121,000 shares, which represents about 0.09% of the company's 132.73M share float

3. American Assets Trust: Operates as a real estate investment trust in the United States. REIT-Office Net institutional purchases in the current quarter at 3.5M shares, which represents about 10.54% of the company's float of 33.20M shares. Over the last six months, insiders were net buyers of 76,500 shares, which represents about 0.23% of the company's 33.20M share float

4. Monmouth Real Estate Investment: Monmouth Real Estate Investment Corporation (MREIC) is a real estate investment trust. It owns, manages, and leases properties to investment-grade tenants on long-term leases. REIT-Industrial Net institutional purchases in the current quarter at 2.8M shares, which represents about 7.41% of the company's float of 37.81M shares. Over the last six months, insiders were net buyers of 19,302 shares, which represents about 0.05% of the company's 37.18M share float

5. Pebblebrook Hotel Trust (NYS: PEB) : Operates as a real estate investment trust. REIT-Hotel/Motel Net institutional purchases in the current quarter at 1.6M shares, which represents about 3.16% of the company's float of 50.56M shares. Over the last six months, insiders were net buyers of 36,945 shares, which represents about 0.07% of the company's 50.56M share float

6. Sunstone Hotel Investors (NYS: SHO) : Operates as a real estate investment trust. REIT-Hotel/Motel Net institutional purchases in the current quarter at 4.1M shares, which represents about 4.09% of the company's float of 100.23M shares. Over the last six months, insiders were net buyers of 115,000 shares, which represents about 0.11% of the company's 100.23M share float

7. LTC Properties: Operates as a health care real estate investment trust (REIT) in the United States. REIT-Healthcare Facilities Net institutional purchases in the current quarter at 1.1M shares, which represents about 3.72% of the company's float of 29.54M shares. Over the last six months, insiders were net buyers of 16,540 shares, which represents about 0.06% of the company's 29.54M share float

8. Apollo Commercial Real Estate Finance (NYS: ARI) : Operates as a commercial real estate finance company in the United States. REIT-Diversified Net institutional purchases in the current quarter at 3.3M shares, which represents about 19.09% of the company's float of 17.29M shares. Over the last six months, insiders were net buyers of 10,000 shares, which represents about 0.06% of the company's 17.29M share float

9. Excel Trust: Engages in financing, developing, leasing, owning and managing community and power centers, grocery anchored neighborhood centers and freestanding retail properties. REIT-Diversified Net institutional purchases in the current quarter at 2.5M shares, which represents about 8.66% of the company's float of 28.88M shares. Over the last six months, insiders were net buyers of 13,810 shares, which represents about 0.05% of the company's 28.88M share float

10. Newcastle Investment (NYS: NCT) : Operates as a real estate investment and finance company that invests in and manages a portfolio consisting primarily of real estate securities. REIT-Diversified Net institutional purchases in the current quarter at 9.1M shares, which represents about 8.95% of the company's float of 101.70M shares. Over the last six months, insiders were net buyers of 1,314,780 shares, which represents about 1.29% of the company's 101.70M share float.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.


Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Institutional data sourced from Fidelity, insider data sourced from Yahoo! Finance.

At the time this article was published The Motley Fool owns shares of Pebblebrook Hotel. Motley Fool newsletter services have recommended buying shares of Pebblebrook Hotel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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