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3 Best-of-Breed REITs to Buy

These REITs represent the best of what their sectors have to offer

By Lawrence Meyers, InvestorPlace Contributor

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I’ve been on a REIT hunt lately, only because I learned that there are more REITs than I originally believed. Apparently, any sector that involves any form of real estate virtually guarantees that REITs will form around it.

3 Best-of-Breed REITs to Buy
Source: ©iStock.com/TimArbaev

We expect REITs in things like the hotel sector or for shopping centers. Lately, however, I’ve been writing about REITs in senior housing, student housing and on Mars.

Well, no, not on Mars … but it’s only a matter of time.

So I’ve pulled together three interesting REITs for you to consider that are the best in their class. Two of the three are in businesses that you might not immediately expect would have REIT potential, but do. The third is one that I’ve written about ad nauseum, but the truth is that it remains the hands-down standout in its sector and you are frankly crazy if it isn’t in your portfolio.

Best-of-Breed REITs: Omega Healthcare Investors Inc (OHI)

Best-of-Breed REITs: Omega Healthcare Investors Inc (OHI)Omega Healthcare Investors Inc (NYSE:OHI) continues a trend that surfaced in the past decade — the creation of nursing homes. I’m sorry to say our baby-boomers are aging and need skilled nursing facilities. This is the kind of long-term secular trend that my favorite mutual fund manager Ron Baron calls a “sunrise industry.”

Omega has invested into this trend and carefully finds good real estate opportunities. Then it permits third-party healthcare providers to move on in and set up shop. There will be no shortage of demand nor tenants for a very long time. That probably explains why the company increased its dividend yield for the tenth consecutive quarter. It now yields a very attractive 5.2%.

It also bought out Aviv REIT Inc (NYSE:AVIV) in a $3 billion stock deal, and redeemed its 7.5% notes five years before maturity. Things are looking good at OHI.

Best-of-Breed REITs: Retail Opportunity Investments Corp (ROIC)

Best-of-Breed REITs: Retail Opportunity Investments Corp (ROIC)Retail Opportunity Investments Corp (NASDAQ:ROIC) is a nifty little play that is highly focused on a specific niche in a specific region.

The company will buy, and then lease or possibly re-position, neighborhood shopping centers. However, the criteria includes them being located in a high-traffic area in a small community. They are not located in big urban centers. In addition, the shopping center must have either a supermarket or drugstore of some acclaim.

We’re not done. The local demographics must be middle- or upper-income, and they only operate in California, Oregon, and Washington. In fact, they own a large piece of property near where I live where I shop all the time.

At 59 properties, it’s small by REIT standards, but I love the attention to specific criteria.

This REIT have a dividend yield of 3.8% and trades at only $17. I think there’s plenty of opportunity for capital appreciation here.

Best-of-Breed REITs: Ashford Hospitality Trust, Inc. (AHT)

Best-of-Breed REITs: Ashford Hospitality Trust, Inc. (AHT)I’m doing to beat the same horse in hospitality that I’ve been beating for a long time, and that is Ashford Hospitality Trust, Inc. (NYSE:AHT), and the spinoff of its higher–end hotel properties, Ashford Hospitality Prime Inc (NYSE:AHP). Look, go ahead and compare Ashford’s operational metrics to any other hotel REIT.

I’ll save you the trouble. Just look at the company’s presentation. The REIT has diversification across geography, brand, and segment. About 91% of earnings before interest, taxes, depreciation, and amortization comes from upper-upscale or upscale hotels. It manages its debt supremely well, with a mix of fixed and floating-rate debt with laddered maturities.

All the trends are in its favor, as transaction volume is expected to rise as private U.S. hotel markets rise, and RevPAR and occupancy continue to increase. AHT pays a 4.5% dividend yield, while AHP pays a 1.1% dividend yield. I also suggest the Preferred Stock Series D, which has an 8.45% dividend yield. I’ve held all three for many years.

Lawrence Meyers owns shares of AHT, AHP, and AHT Pref. D.

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