Investing

4 High-Yielding REITs to Buy With Big Upside Price Potential

The real estate investment trusts (REITs) and other bond proxy securities have had a tough time fighting the headwinds of potential rate increases. The fact of the matter is that when the Federal Reserve does start to raise rates, they will be very small and very measured. In fact, most experts agree that they will be raised so slowly that by the end 2017 the fed funds rate will still be a very low 2%.

A new research report from SunTrust Robinson Humphrey makes the case that many of the top companies in the REIT segment have the ability to have earnings very positively affected by share repurchase programs. In a surprising note, 45 of the 89 REITs in the firm’s analysis have no share repurchase authorization in place, making the ability to start one not only a possibility, but a potential tailwind for the sector.

We screened the SunTrust coverage universe for the highest yielding REITs with a rating of Buy, and found four with big upside to the SunTrust target prices that look outstanding for growth and income investors.

Brandywine Realty Trust

This one comes in as one of the top yielding REITs. Brandywine Realty Trust (NYSE: BDN) is one of the largest, publicly traded, full-service, integrated real estate companies in the United States. Organized as a real estate investment trust and operating in select markets, Brandywine owns, leases and manages an urban, town center and transit-oriented office portfolio comprising 281 properties and 33.2 million square feet as of June 30, 2015.

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The company recently completed the acquisition of the seven-building, 66-acre, 1.1 million square foot Broadmoor campus in fast growing Austin, Texas. The Broadmoor campus was developed for IBM, which has been the sole-occupant and a joint venture partner with Brandywine and its predecessor company since the campus was developed in 1991. Brandywine has started developing a master plan to ensure an accelerated transition to a mixed-use, multi-tenant destination that will offer a variety of new amenities for workers in and around the campus.

Brandywine shareholders are paid a very rich 5.06% distribution. The SunTrust price target is $18, and the Thomson/First Call consensus price target is $16.13. Shares closed Friday at $12.03. It is important to remember that REIT distributions can contain return of capital.
Brixmor Property Group

This company posted solid second-quarter numbers as almost all the leasing metrics showed solid year-over-year growth. Brixmor Property Group Inc. (NYSE: BRX) owns and operates the nation’s largest wholly owned portfolio of grocery-anchored community and neighborhood shopping centers, with 519 properties aggregating approximately 87 million square feet of gross leasable area located primarily across the top 50 U.S. metro markets. Brixmor leverages its national footprint, local market knowledge and operational expertise to support the growth of its retail tenants.

The company is focused on maximizing the value of its portfolio through its ongoing “Raising the Bar” program, which involves strategic leasing and anchor space repositioning/redevelopment initiatives. Headquartered in New York City, the company is the largest landlord to The TJX Companies and Kroger.

Brixmor investors are paid a solid 4% distribution. The SunTrust price objective is $30, and the consensus target is $28.18. Shares closed Friday at $23.14.

Camden Property Trust

This top company also posted solid second-quarter results that surpassed Wall Street expectations. Camden Property Trust (NYSE: CPT) is engaged in the ownership, management, development, redevelopment, acquisition and construction of multifamily apartment communities. Camden owns interests in and operates 168 properties containing 58,446 apartment homes across the United States. Upon completion of 12 properties under development, the company’s portfolio will increase to 62,452 apartment homes in 180 properties.

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SunTrust made Camden one of the firm’s highest conviction picks when it initiated coverage back in the summer. The analysts cited the company’s stellar numbers including having one of the lowest price to earnings growth and net debt/EBITDA ratios in our office coverage universe, as well as a significant discount to net asset value.

Camden investors are paid a 4.02% distribution. The SunTrust target price is $92, and the consensus target is $84.67. Shares closed Friday at $70.73.

DDR

This is another top-yielding REIT in the industry. DDR Corp. (NYSE: DDR) is an owner and manager of 401 value-oriented shopping centers representing 119 million square feet in 41 states and Puerto Rico. The company’s portfolio is comprised primarily of large-format power centers located in top markets across the United States, and it is actively managed to create long-term shareholder value.

The DDR management team has been focused on upgrading the quality of its portfolio over the past five years, while growing both its funds from operations and dividend payout. DDR is the largest owner of U.S. power centers, which have been outperforming smaller open-air shopping centers. This is largely due to the higher percentage of quality anchor tenants and junior anchors, and fewer small-store tenants.

DDR investors are paid an outstanding 4.68% distribution. The SunTrust target price is $21, and the consensus is at $19.09. Shares closed Friday at $15.20.

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Many of these top stocks have been hit hard as worries over interest rates have knocked prices down. The reality is these companies tend to benefit from economic growth, which appears to definitely be on the upswing.

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