What Are Real Estate Investment Trusts Preferred Stock? How To Make Money With Real Estate Investment Trusts Preferred Securities (Real Estate Investment Trusts Preferred Stock)

When investors seek to take advantage of publicly listed real estate opportunities, they often favor traditional REIT common stock to gain exposure. This makes sense — from Oct. 1, 2008 through Sept. 30, 2018, US REIT common stock has provided attractive returns coupled with income generation, potential diversification benefits and a potential hedge against inflation. However, we believe US REIT preferred stock may offer a unique opportunity for investors to access real estate like returns with even higher income (and lower volatility) versus traditional REIT common stock. A real estate investment trust (REIT) is a company that owns (and typically operates) income producing real estate or real estate related assets.

Preferred stock is class of ownership in a corporation that has a higher claim on its assets and earnings than common stock.

Understanding US REIT preferred securities

REIT preferred stock is a type of hybrid security with both equity- and bond-like characteristics. Within the capital structure of REIT companies, preferred stocks have a senior claim to earnings and dividends versus common stock but are generally junior to corporate bonds. The dividends paid on REIT preferred stock are often considerably higher than REIT common stock and shares are generally issued at a par value (often $25). While REIT preferred shareholders have no voting rights, they can often benefit from investing when issues are trading at discounts to par. REIT preferred stock is generally callable after five years from the date of issuance, at which point management reserves the right to redeem the shares at par. This five-year non-call period provides the potential not only for income, but also capital appreciation. The five-year non-call period also gives investors a more certain return opportunity over the time period, which may be an additional benefit.

Why do companies issue REIT preferred stock?

So why do REIT companies issue preferred stock at all given the options of simply issuing common equity or traditional corporate debt? First, when REIT companies issue preferred stock (versus traditional corporate debt) they are often given more favorable treatment by rating agencies. This allows companies to showcase lower leverage levels to prospective investors and analysts. Second, REIT preferred stock provides companies with a unique source of capital. While these shares are generally callable after five years at par, company management reserves the right to keep the shares outstanding in perpetuity. A broad array of REIT companies offer preferred stock, including those that operate in sectors focused on residential, office, retail, industrial, self-storage, data centers, infrastructure, healthcare and lodging. While the universe of US REIT preferred stock is relatively small by number of issuers and total capitalization, the benefits to investors have historically been quite compelling.

A comparison: US REIT preferred stock versus US REIT common stock

Over the last ten years – since the global financial crisis in October 2008 to the present – REIT preferred stock has outperformed REIT common stock with roughly half the volatility. The higher level of income generated by the preferred shares, coupled with the potential for capital appreciation for discounted securities, has allowed this segment of the capital structure to generate excess returns.

Over the past ten years, US REIT preferred stock has outperformed US REIT common stock

Over the last ten years, ZARZAR LAND has also observed that US REIT preferred stock has tended to outperform REIT common stock during periods of rising interest rates. We believe that the higher level of yield spreads versus the 10-year Treasury and other preferred sectors have allowed these securities to insulate themselves more to periods of rising interest rates.

US REIT preferred stock has tended to outperform REIT common stock during periods of rising rates

Given the yields of US REIT preferred stock today (which generally span from 5% to 8%), investors have the right to question the sustainability of these distributions. Unlike financial preferreds, which have experienced certain periods of double-digit levels of payment defaults, since 2000 the US REIT preferred universe has never seen a year with more than a 1% level of missed payments. In the past 18 years, the average annual default rate for US REIT preferred stock has been a modest 0.25%, reflecting the stable and predictable cashflows generated by real estate-related companies over the period. And in the last four calendar years there have been no defaults in the broader US REIT preferred universe at all. We also believe that convertible REIT preferred securities may create even better tracking relative to REIT common stock and may provide more robust protection against rising interest rates than non-REIT preferred stock.

Stocks That Pay Monthly Dividends To Investors

What income investor doesn’t enjoy the frequent monthly payouts and reliable cash flow that can come from owning monthly dividend stocks, trusts, and other investments such as real estate investment trusts? The ability to offset predictable expenses such as mortgage payments and utility bills every month with income from monthly dividends provides the ultimate convenience, timeliness, and peace of mind for many investors.

Apple Hospitality REIT (Real Estate Investment Trust)

Apple Hospitality REIT (APLE) is one of the hotel industry’s largest owners of select service and extended stay hotels. Apple Hospitality invests in only two brands, Hilton (HLT) and Marriott (MAR), and is one of the top five owners of Hilton and Marriott hotels nationwide. This real estate investment trust (REIT) owns 241 hotels in 34 states and focuses on top business traveler markets such as Los Angeles, San Diego, Atlanta, Nashville, and Dallas Texas.

Apple Hospitality was formed through the mergers of several non-traded real estate investment trusts (REIT). Since becoming publicly traded in 2015, Apple Hospitality has generated consistent income growth and a steady monthly dividend of 10 cents per share ($1.20 annualized). Funds from operations (FFO, an important measure of REIT profitability) per share totaled 89 cents through the first six months of 2018, easily covering the 60 cents paid out in monthly dividends.

How To Invest In Farmland – Gladstone Land & How To Invest In Farming & Buy Farmland Without Owning A Farm

Gladstone Land (Nasdaq stock symbol: LAND) invests in farms and farmland. The real estate investment trust (REIT) owns approximately 75 farms and 63,000 acres of land across nine states. Its land portfolio is valued at approximately $537 million and is 99.7% leased. The farmland owned by Gladstone Land is primarily used to grow fresh fruits and vegetables, rather than commodity crops like corn, wheat, and soybeans. The advantages of fresh produce farms are higher productivity and rents. Also, there is no tariff risk since production from Gladstone farms is consumed domestically and rarely exported.

The market for farmland is highly fragmented in the United States. In addition, roughly two-thirds of American farmers are nearing retirement age, creating many farm acquisition opportunities for Gladstone Land.

Gladstone had its initial public offering (IPO) in 2013 and pays monthly dividends. Farm portfolio growth and annual rent increases have fueled 11 dividend increases over five years and approximately 48% dividend growth.

Gladstone Land Stock Price.
Gladstone Land Stock Price.

How To Invest In Farming & Buy Farmland Without Owning A Farm

Investing in farming can seem like a good strategic move for real estate and land investors. After all, whether the overall economy is in recession or booming, people still have to eat food. Because of this, many real estate and land investors regard agriculture and farming investments as being recession-proof. Furthermore, as the world’s population increases, farming will play an increasingly important role in sustaining people around the world. That said, buying a farm is not very easy for the average investor because it can require a large capital commitment and the time and cost of operating or leasing farmland is often substantial. Fortunately, real estate and land investors have many other means to gain exposure to the sector without having to actually buy a farm.

Farmland Real Estate Investment Trusts (REIT)

The closest that an investor can get to owning a farm without actually purchasing farmland is by investing in a farming focused real estate investment trust (REIT). Some examples include Farmland Partners Inc. (New York Stock Exchange symbol: FPI) and Gladstone Land Corporation (Nasdaq stock symbol: LAND).

These real estate investment trusts (REIT) typically purchase farmland and then lease it to farmers. Farmland real estate investment trusts (REIT) offer many benefits, such as providing much more farmland diversification than by simply buying a single farm, as they allow an investor to have interests in multiple farms across a wide geographic region.

Farmland real estate investment trusts (REIT) also offer greater liquidity than does owning physical farmland, as shares in most of these real estate investment trusts (REIT) can be quickly bought and sold on stock exchanges for as little as $4.95 in commissions with a stock broker such as Charles Schwab. In addition, farmland real estate investment trusts (REIT) such as Gladstone Land (Nasdaq stock symbol: LAND) also decrease the amount of capital needed to invest in farmland, as the minimum investment is just the price of one real estate investment trust (REIT) share (or less if you use a stock broker that allows fractional shares). In other words, you can become an indirect farmland part owner for less than $100 United States dollars.

Park Hotels & Resorts (NYSE: PK), A Great Way To Own Hilton Hotels | Park Hotels & Resorts REIT (Real Estate Investment Trust)

Back in February 2016, Hilton announced its intention to spin off its real estate and timeshare businesses in an effort to unlock the value of its shares. Under the plan of reorganization, Park Hotels & Resorts (NYSE: PK) was created to hold the portfolio of hotel and resort properties that Hilton Worldwide owned. At the same time, Hilton Grand Vacations (NYSE: HGV) would be the new holder of Hilton’s timeshare business.

Under the terms of the spinoff, Hilton Worldwide investors received one share of Park Hotels & Resorts (NYSE: PK) stock for every five shares of Hilton common stock they owned. Similarly, one share of Hilton Grand Vacations (NYSE: HGV) stock was distributed for every 10 shares of Hilton common stock.

Following the spinoff, Hilton wanted to keep the value of its original company shares in the same range as it traded before the spinoff. The 1-for-3 reverse split was designed to accomplish that goal.

So at the end of the day, a shareholder with 300 shares of Hilton Worldwide would own the following positions:

60 shares of Park Hotels & Resorts (NYSE: PK);
30 shares of Hilton Grand Vacations (NYSE: HGV); and
100 shares of the new Hilton, after the reverse split was completed.



Freeing the individual divisions to conduct their own business has allowed each new company to pursue opportunities differently. The new publicly traded real estate companies hope that separately, they’ll produce better overall performance than they would have together, but the move has also allowed investors to vote with their feet and choose the parts of Hilton’s former integrated business that they like the best. Thus, real estate and Hilton investors shouldn’t be surprised if all three pieces of the former Hilton company end up doing well in the future. Continue reading “Park Hotels & Resorts (NYSE: PK), A Great Way To Own Hilton Hotels | Park Hotels & Resorts REIT (Real Estate Investment Trust)”

PowerShares KBW Premium Yield Equity REIT (Real Estate Investment Trust) Portfolio (Nasdaq: KBWY)

The clobbering in the REIT space isn’t a company here and a company there. Much of the industry has been getting pummeled amid inflation and interest-rate fears, with the investing world once again forgetting that REITs and their growing dividend payouts are well-protected against these forces over time.

That has created an opportunity that we’ve simply never seen before in the PowerShares KBW Premium Yield Equity REIT Portfolio.

The KBWY is unlike the Vanguard REIT ETF, Schwab US REIT ETF and other basic REIT funds in that this isn’t a collection of high-market-cap real estate plays. Instead, KBWY invests in a basket of 30 small- and mid-cap REITs and uses a methodology that allocates higher weights to stocks with higher dividends. Washington Prime Group and New Senior Investment Group are the ETF’s largest weights as of this writing.

KBWY’s yield had been expanding for years thanks to good, old-fashioned dividend growth, but the recent plunge in prices has shot the fund’s annual dole to an all-time high 8.4% on a trailing 12-month basis.

Simply put: If you believe in a near-term rebound across the board, this ETF will pay you more than most to express your inner bull.

PowerShares KBW Premium Yield Equity REIT Portfolio:

Dividend Yield: 8.4%

Expenses: 0.35%

Some small-cap dividend ETFs feature sizable allocations to real estate stocks while other funds in this category feature no real estate exposure. Investors without real estate exposure can take advantage of the high-yielding PowerShares KBW Premium Yield Equity REIT Portfolio (NASDAQ:KBWY).

KBWY has a 12-month distribution rate of 8.46%, well above what income investors will find on traditional real estate funds. While this dividend ETF has the capacity to hold mid-caps, its current portfolio is comprised entirely of small-caps, indicating that smaller real estate companies can provide investors with big income opportunities.

KBWY holds 30 stocks with an average market value of $1.99 billion, putting the fund at the upper end of the small-cap spectrum. This PowerShares ETF has outperformed several of its well-known large-cap rivals over the past three years, but KBWY has been more volatile than large-cap real estate ETFs over that period.

What Are Real Estate Investment Trusts? What Is A REIT?

REIT is an abbreviation for “real estate investment trust”. A REIT is like a mutual fund or exchange traded fund that owns individual properties rather than stocks or bonds. The REIT (real estate investment trust) is responsible for acquiring and managing the real estate that it owns. Basically, a REIT (real estate investment trust) offers an easy way for individual investors to invest in real estate properties located around the world.

As an individual investor, the goal is to receive rental income on the properties owned by the real estate investment trust (REIT) and to participate in price appreciation. The advantage of investing in real estate through a real estate investment trust (REIT) is that you get exposure to a diversified portfolio of properties and you do not have to manage them yourself.

Publicly Traded Real Estate Investment Trusts | How To Invest In A Public Real Estate Investment Trust (REIT)

A real estate investment trust (REIT) can be publicly traded, which means that it has a ticker symbol, and that you can easily look up its share price and dividend yield on the Internet. In fact, investing in public real estate investment trusts is so easy that the only thing that you will need is a little money (a few hundred dollars can easily get you started) and an account with a stock broker (such as Charles Schwab, Fidelity Investments, E-Trade, or TD Ameritrade).

Real estate investment trusts typically own large commercial buildings, beautiful world class shopping malls, retail stores, or apartment buildings, although there are also specialized real estate investment trusts that own hotels and other properties in the hospitality industry, and there are also real estate investment trusts that focus on long-term care facilities or other properties in the medical industry. Mortgage real estate investment trusts own the debt on the properties, not the properties themselves, and thus are more like mutual funds that own mortgages, and collect the payments.

Real Estate Ownership Through Real Estate Investment Trusts (REITs)

Real estate investment trusts provide a way for individual investors to become owners of commercial properties. Real estate investment trust investors can own commercial real estate properties without the hassles of managing those properties. Real estate investment trusts, through experienced management teams, purchase and manage commercial real estate properties. When you purchase shares in a real estate investment trust (REIT), you become a partial owner of those properties. From this perspective, you are also a partial owner of an operating business that manages properties for profit. In a way, real estate investment trusts are modeled after mutual funds, and many of them are traded on major stock exchanges such as the New York Stock Exchange (there are also privately held real estate investment trusts that do not trade on stock exchanges).



Boston Properties (NYSE: BXP)

Boston Properties, a real estate investment trust (REIT), is one of the largest owners, managers, and developers of first-class office properties in the United States. Boston Properties has significant presence in five markets: Boston, Los Angeles, New York, San Francisco, and Washington, DC. Boston Properties is listed on the New York Stock Exchange with the ticker symbol “BXP” which basically means that any individual investor can become part owner of the company by simply buying its shares (also known as common stock) through a stock broker.

Boston Properties is valued at approximately $20 billion United States dollars making it one of the largest real estate investment trusts in the United States. Boston Properties had yearly revenue of approximately $2.6 billion United States dollars thanks to its diverse portfolio of primarily Class A office space totaling approximately 48.4 million square feet and consisting of 164 office properties (including six properties under construction), five retail properties, five residential properties (including three properties under construction), and one hotel.

Boston Properties is one of the largest owners and developers of Class A office properties in the United States (it owns world class real estate properties concentrated in five important real estate markets: Boston, Los Angeles, New York, San Francisco, and Washington, DC.). Thus, owning shares of Boston Properties (a real estate investment trust) is an easy way for individual investors to own part of a world class real estate company that owns high quality income producing real estate properties in several different states (a few hundred dollars can easily get you started with a stock broker allowing you to slowly start building your income producing real estate investment portfolio with very little money).