When the Real Estate Investment Trust (REIT) analysts at UBS A.G. (UBS) launched their U.S Select REIT portfolio, the idea was to have a flexible portfolio that could be added to or deleted from as the market or fundamentals changed. The portfolio is designed to have a list of names to buy that are the highest conviction stock ideas from their coverage universe. The UBS portfolio is skewed heavily to multifamily REITs, reflecting their view that this property type offers the best relative value in the REIT sector. They also remain Overweight on class A malls/outlets and select office REITs.
Here are the top REIT stocks to buy, according to UBS.
BRE Properties Inc. (BRE) assets generally are situated in premium supply-constrained markets of the United States that have fared comparatively well post recession. This drives value and mitigates operating risks, by generating relatively steady revenue growth. In addition, the improving apartment sector will enable the company to witness significant demand for its upscale communities in the coming years. Moreover, BRE Properties has a strong financial position with minimal debt levels. The UBS price target for the stock is $54. The Thomson/First Call estimate is at $51.50. Investors are paid a 3.0% dividend. REIT dividend can include return of principal.
UDR Inc. (UDR) acquires, renovates, develops and manages primarily apartment properties and other commercial assets and owns or had ownership interests in 54,195 apartment homes, including 2,887 apartment homes under construction. UDR's communities are located in Calif., Va., N.Y., Mass., Fla., Tenn., Md. and D.C. UDR owns a 100% general partner interest and a 94.9% limited partnership interest in its UpReit general partnership, United Dominion Realty. The UBS price target for the stock is $27 while the consensus is at $26. Investors are paid a 3.6% dividend.
Avalonbay Communities Inc. (AVB) delivered a positive earnings surprise of about 2.5% for the second quarter of 2013. This apartment real estate investment trust reported core funds from operations (FFO) of $1.62 per share, beating the consensus estimate of $1.58 per share. The core FFO per share was also 20.9% ahead of the prior-year quarter figure. The UBS price target for this top name is $142, and the consensus is at $143. Investors receive a 3.0% dividend.
Equity Residential (EQR) focuses primarily on major markets, where it stands to benefit rising rents in many urban areas. The company derives significant leverage from a small increase in revenues, and while shares have underperformed the S&P 500 year to date, it is due to unfounded fears related to increased supply and interest rates. UBS has a $63 price target on the stock, and the consensus target is at $62. Investors are paid a 2.7% dividend.
Tanger Factory Outlet Centers Inc. (SKT) is considered to have one of the best management teams in the REIT industry. The company, through its subsidiary, Tanger Properties, engages in acquiring, developing, owning, operating and managing factory outlet shopping centers. As of September 30, 2005, Tanger owned and operated 33 factory outlet centers in 22 states, totaling 8.7 million square feet of gross leasable area. UBS has a $41 price target, and the consensus stands at $39.50. Shareholders receive a 2.5% dividend.
Simon Property Group Inc. (SPG) is the top name in the REIT universe and continues to dominate the large class A mall arena. The firm invests in the real estate markets across the globe. It primarily invests in regional malls, Premium Outlets, The Mills, community/lifestyle centers and international properties to create its portfolio. The UBS price target for this leader is $192, the consensus target is at $190. Investors are paid a 2.8% dividend.
With an improving economy and some semblance of job creation, consumers slowly but surely are starting to feel more confident. The REIT industry has consolidated over the past five years, leaving the best names standing and the highly leveraged, poorly run concerns in the history books. Solid growth combined with good dividends always makes sense in a well-rounded portfolio.