Four Residential REITs Worth a Closer Look

Jacob Harper |

After the 2000s, where real estate prices skyrocketed to unreal levels before crashing and nearly taking the entire economy with them, the majority of investors are understandably skittish about reinvesting in that market. After all, housing has already proven itself to be volatile and prone to the biggest of bubbles.  

Slowly but surely though, investors have begun to creep back into the market, notably through Real Estate Trusts, commonly known as REITs. REITs tend to spread out risk by holding several income-producing real estate ventures, like apartment buildings.  

Of course, like real estate investments not all REITs are created equal. But by isolating a few key metrics investors can dig up the ones with more solid foundations and hopefully find plays with a minimal amount of risk.

To find stronger REITs, we wanted to find investments that fit into these criteria:

1. A price-to-cash and price-to-book ratio over 1.

It’s important for finance companies to have strong book value and cash, in addition to validation of these assets by the market. A floor of 1 helps assure this.

2. An operating margin of 25 percent or better.

A high operating margin indicates the company is allocating capital efficiently.

3. A positive return on investment (ROI.)

This shows the REIT is using invested capital wisely.

4. An analyst consensus of at least “buy.”

While we trust our metrics, it certainly does not hurt to have the agreement of the experts.

After applying these criteria we found four REITs that fit the bill. It should be noted none of these REITs have provided substantial gains over the last year with two actually losing a bit of value. However, REITs are still rebounding, not to mention they tend to provide a nice dividend, and thus can be considered less growth plays and more value storage investments.

The four REITs we isolated are:

Equity Lifestyle Property Inc. ($ELS)

Market Cap: $3.19 billion

Price: $38.45

P/E: 55.72

Dividend: 2.6 percent

Essex Property Trust (ESS)

Market Cap: $5.71 billion

Price: $152.94

P/E: 37.86

Dividend: 3.16 percent

PennyMac Mortgage Investment Trust (PMT)

Market Cap: $1.5 billion

Price: $23.29

P/E: 8.06

Dividend: 2.36 percent

Post Properties Inc. ($PPS)

Market Cap: $2.47 billion

Price: $45.36

P/E: 30.65

Dividend: 2.91 percent

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ESS Essex Property Trust Inc. 214.50 2.27 1.07 310,416
ELS Equity Lifestyle Properties Inc. 69.97 0.89 1.29 536,490
PMT PennyMac Mortgage Investment Trust of Beneficial I 15.96 -0.05 -0.31 264,869
DSTI Daystar Techs Inc 0.02 0.00 0.00 0

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