Real estate is always a solid addition to a diversified portfolio. It also is not as correlated to the stock market as other alternative type investments. The portfolio managers for the UBS U.S Select REIT portfolio continue to see a muted total return environment for REITs and commercial real estate over the next few years, as solid property level cash flow growth is offset by falling valuations due to rising interest rates. They continue to prefer REITs with a combination of low leverage, above-average net operating income (NOI) growth and value-added development capabilities. We screened their list of stocks to buy by sector and looked for the top dividend yields available.
Alexandria Real Estate Equities Inc. (ARE) is the top name to buy in the office sector. The company has 159 properties, including 156 properties located in nine states in the United States and three properties located in Canada. The UBS price target for the stock is $77. The Thomson/First Call estimate is at $78. Investors are paid a 3.8% dividend. Remember, REIT dividends may contain return of principal.
UDR Inc. (UDR) is the top yielding stock to buy in the apartment sector. The company reported solid second-quarter earnings back in July. Total revenue during the quarter was $191.8 million, up 6.5% year-over-year and exceeding the consensus estimate of $189 million as well. UBS has a $27 price objective, and the consensus number is at $26. Shareholders are paid a 3.8% dividend.
DDR Corp. (DDR) is the top name to buy in the shopping center sector. The company engages in acquiring, developing, redeveloping, owning, leasing and managing shopping centers, mini-malls and lifestyle centers. It reported second-quarter earnings in line with what Wall Street expected and up 8% from a year ago. The UBS price target for the stock is at $19, the same as the consensus target. Investors are paid a 3.2% dividend.
Simon Property Group Inc. (SPG) is the top regional mall stock to buy, and the 900-pound gorilla in the REIT world. Simon Property reported second-quarter funds from operations (FFO) per share of $2.11, beating the estimate by $0.04 per share. FFO per share jumped 11.6% over the prior year. The company also reported revenue of $1.24 billion, which was in line with expectations. UBS price target for this elite name is $192, while the consensus target is posted at $186.50. Shareholders are paid a 2.9% dividend.
Prologis Inc. (PLD) is the top name to buy in the industrial REIT sector. The company just completed a gigantic $1.25 billion guaranteed debt offering. Included in the aggregate amount are $400 million of notes due February 15, 2019, that have an annual coupon rate of 2.75% and were priced at 99.965% of the principal amount, and $850 million of notes due August 15, 2023, that have an annual coupon rate of 4.25% and were priced at 99.742% of the principal amount. The company is using the funds to repay higher coupon debt. UBS has a $44 price target, but the consensus number was unavailable. Shareholders are paid a 2.9% dividend.
Education Realty Trust (EDR) is the top name in student housing. The company recently inked a deal with the University of Kentucky to build additional on-campus housing. Last year it built on-campus housing for Mansfield University. It also announced a 10% dividend hike. UBS has a $11 price target, and the consensus target is $11 as well. Investors are paid a solid 4.8% dividend.
While the UBS analysts clearly prefer multifamily names as the best relative value in the sector, they carefully screen the rest of the REITs in their universe. These top names to buy not only add diversity to a portfolio, they also add consistent and growing income.
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