A A I I J o u r n A l S E P T E M B E R 2 0 2 1 2 3
A A I I . c o m / J o u r n A l
The First Cut is designed as a starting point, showing the top investments that pass relatively simple screens of interest to
individual investors.
F i r s t C u t : s t o C k s
The Stocks First Cut is designed as a starting point, showing the top stocks that pass relatively
simple screens of interest to individual investors.
Company Ticker
(%) Industry
Arbor Realty Trust Inc. ABR 18.70 7.5 8.8 9.2 16.5 50.1 33.5 REITs - Specialized
Gey Realty Corp. GTY 31.70 4.9 4.9 5.5 10.0 89.1 5.9 REITs - Commercial
Kilroy Realty Corp. KRC 67.15 3.0 2.3 2.3 6.9 35.0 9.1 REITs - Commercial
AvalonBay Communies Inc. AVB 222.20 2.9 3.0 3.4 5.1 82.4 4.4 REITs - Residenal
Hannon Armstrong Sustnbl Infrs HASI 58.08 2.4 5.9 1.9 5.4 93.5 26.1 REITs - Commercial
Extra Space Storage, Inc. EXR 173.42 2.3 3.6 5.6 10.0 78.1 11.6 REITs - Specialized
Alexandria Real Estate Equies ARE 204.55 2.2 4.5 5.8 7.0 66.4 17.5 REITs - Commercial
Duke Realty Corp. DRE 50.39 2.0 3.1 8.7 6.8 75.6 4.6 REITs - Commercial
First Industrial Realty Trust FR 54.47 2.0 3.1 8.3 14.4 57.4 4.1 REITs - Commercial
American Tower Corp. AMT 277.22 1.8 2.1 18.4 20.6 94.3 11.0 REITs - Specialized
Source: AAII Stock Investor Pro, Refiniv I/B/E/S and iShares. Data as of 8/11/2021.
10 REITs With Growing Dividends and Sales
(Ranked by Dividend Yield)
Real estate investment trusts (REITs) are a popular way
for investors to own income-generating real estate without
having to purchase or manage property. Many investors
like REITs for the income distributions. Unlike traditional
corporations, REITs must invest in real estate and distrib-
ute 90% of their taxable income.
Compared to private real estate investments, public
investments in equity REITs are more liquid, have a lower
minimum investment, have more limited liability (and
therefore less risk), offer the same protections as publicly
traded securities, provide easy access to active professional
management and require less hands-on work.
There are a couple of notable investment characteris-
tics that you can expect REITs to bring to your portfolio,
such as relatively high yields, stable earnings and income
(due to the long-term contractual nature of many leases
and rental agreements), capital appreciation and diversifi-
cation (historically, REITs have had a low correlation with
other assets).
We can construct a universe of equity REITs to invest
in using AAII’sStock Investor Pro. The fundamental stock
screening and research database program contains a field
under the Company Information category labeled “Indus-
try.From it, we choose commercial, diversified, residen-
tial and specialized REITs. By simply requiring stocks to
be exchange-listed, have a stock price above $4 and have
a current yield greater than the market yield of 1.2%, we
start to build our universe of equity REIT stocks.
The key cash flow and profitability measures for ana-
lyzing an equity REIT are net operating income (NOI),
which measures the net cash generated by an income-
producing property, and funds from operations (FFO),
which measures cash flow from operations to assess a
REIT’s operating performance. AAII’s Stock Investor Pro
tracks traditional valuation metrics like the price-earnings
ratio and the price-to-free-cash-flow ratio, but net income
and earnings per share don’t translate well to REITs. The
AAII database does not include NOI or FFO, so many REIT-
specific valuation metrics can’t be calculated.
The next step is to narrow this list down to an invest-
able universe. We chose to focus on a growth-oriented
strategy. Specifically, we required stocks to have realized
annual revenue growth greater than 3% over the past five
years. This narrows the results to REITs that have been able
to increase annual rent rates or occupancy levels. We then
require high-quality, dividend-paying companies that
have continuously grown their dividends for at least three
consecutive years. A minimum dividend growth rate over
the past five years of 5% was also chosen to ensure that the
REITs have growth in excess of the rate of inflation. The
list of First Cut equity REIT stocks are shown in the table.
—Derek J. Hageman, AAII financial analyst
Real Estate Investing Without Purchasing or Managing Property
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