Motley Fool recently offered three investments picks "if you want income and growth, but don't have the stomach for too much risk."
The Fool's solution is a trio of real-estate innvestment trusts (REITs):
- Public Storage (NYSE:PSA),
- Realty Income (NYSE:O),
- and Equity Residential (NYSE:EQR)
"Risk-averse investors don't necessarily need to sacrifice growth," the Fool explained, adding that its trio of REIT picks "can give you growing income and the potential for share-price growth while still allowing you to sleep at night."
The Fool gave numerous reasons for why it picked each REIT, and among the highlights:
- The leading self-storage operator, by far, Public Storage has a total of 2,593 properties with nearly 188 million rentable square feet and is larger than its three closest competitors combined.
- One of the most risk-averse REITs in the market is Realty Income, which specializes in freestanding retail properties. Realty Income has more than 4,600 properties leased to 246 commercial tenants operating in 47 different industries. The properties are located in 49 states and Puerto Rico, and most of the company's retail properties operate in one or more of three recession- and competition-resistant forms of retail.
- Equity Residential acquires, develops, and operates apartment properties in high-growth, high-barrier markets. Examples of Equity's core markets include San Francisco, Los Angeles, New York City, and Boston, where homeownership is expensive, job growth is strong, and barriers to new apartment construction are high. The company owns or has an ownership interest in 315 apartment properties with a total of more than 79,000 units.
To be sure, many Joe Public investors may be unaware of the esoteric traps and risks of REITs.
"One thing many investors don't realize is that many of the normal metrics we use to analyze stocks aren't useful when applied to REITs," warns Motley Fool Contributor Matt Frankel.
"Specifically, earnings per share and associated metrics like a price-to-earnings ratio are not good indicators of a REIT's profitability," he said.
"A better metric to use is funds from operations, or FFO. When earnings are calculated, standard accounting practices allow companies to depreciate the value of assets (such as real estate) over a long period of time and deduct this amount from their earnings. However, this depreciation doesn't cost the REIT a dime – if anything, the value of its properties should increase as time goes on."
However, Jon Gray, global head of real estate at Blackstone Group LP, the largest private equity investor in property worldwide, said stock investors are too bearish on U.S. real estate. The market’s decline probably will lead to more takeovers of publicly traded landlords, along with asset sales, he told Bloomberg.
(Newsmax wire services contributed to this report).
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