Tell your friends and co-workers that you are looking for the best diversified real estate investment trusts, or REITs, and you'll get some seriously blank looks (trust me on this one). But their loss is your gain, because this sub-sector is stacked with some great companies and big dividend payers. As I see it, here are the three best diversified REITs you can buy today.
W.P. Carey (NYSE:WPC)
When I think "diversified REIT," I want a company that can own and manage any kind of commercial real estate, anywhere in the world. W.P. Carey fits the description -- along with the added benefit of a 5.8% yield.
Currently, 65% of the company's annual rent comes from tenants in the U.S., with the rest predominately spread across Europe. However, with asset management offices in Shanghai, as well as New York and Amsterdam, and the company's CEO, Trevor Bond, suggesting in the past that the company is watching Latin America, nowhere seems off limits for W.P. Carey.
As you can see in the chart below, the company is also widely diverse by property type and by tenant industry.
W.P. Carey's diversity means it's able to leverage a global platform that gives the company access to a broad pool of assets not available to the competition. Bond explained it best in the company's 2013 annual report:
We believe that our ability to seek out and execute such "out of the box" opportunities is a core competency and key driver of our long-term success, as well as a point of differentiation.
Ultimately, despite only being a REIT since 2012, W.P. Carey has been managing commercial real estate assets for over 40 years, and the unique platform it has created allows the company to pursue and capture, as its tag line suggests, "A world of opportunity."
Gramercy Property Trust (NYSE:GPT)
As a $1.3 billion market cap company focusing on office and industrial properties in the U.S., Gramercy Property Trust is about a sixth the size and nowhere near as diverse as W.P. Carey.
But dig in a little deeper and the companies have one important similarity: Gramercy Property Trust's current CEO, Gordon DuGan, was CEO of W.P. Carey from 1999 to 2010. During his tenure, W.P. Carey grew assets under management from $2 billion to approximately $10 billion. Moreover, it was under DuGan's watch that W.P. Carey expanded into Europe and widened the unique platform the company now enjoys.
When DuGan transitioned to Gramercy in mid-2012 it was a specialty finance company investing primarily in commercial mortgage loans. However, over the last two years, the company sold its commercial loans, added over $1 billion in commercial real estate equity (physical properties), built up the company's asset management business -- which, as of this past December, has expanded to Europe -- and, most impressive, has done it all profitability. This allowed the company to reestablish its dividend in the beginning of 2014, which currently yields 2.8%.
As a smaller company that is growing rapidly, Gramercy Property Trust certainly has its risks, but considering what the company has accomplished in a short time, and the experience of its CEO, I think Gramercy Property Trust is a great bet, with a lot of upside.
Starwood Property Trust (NYSE:STWD)
As a commercial mortgage REIT, Starwood Property Trust makes mortgage loans to businesses for commercial properties. If you think that sounds a lot like what banks do, you're right.
However, because Starwood Property Trust is not regulated as strictly as traditional banks, it has the flexibility to pursue larger, shorter-term, and more complex loans, which gives it a niche. Although with a $7 billion commercial loan portfolio, it is a sizable niche.
As you can see, despite only being a public company since 2009 the Starwood Property Trust is widely diverse geographically and by the types of properties it is making loans on.
What is most interesting is how has the company has been able to create this diversity, which is due in part to the Starwood name. As a member of the Starwood family, the company can leverage the experience of CEO and founder of Starwood Hotels Barry Sternlicht, as well as the abundance of resources, information, asset management, and global scale of Starwood Capital -- with more than $42 billion in assets under management, it is one of the largest private real estate management firms in the world.
As a sector, mortgage REITs have a tumultuous history, which is why many of these companies trade at low valuations and sport high-yields -- like Starwood Property Trust's current yield of 8%. So it is important to understand the risks with these businesses. With that said, I think operating in a niche and having proven and experienced leadership and the ability to take advantage of the global capabilities of Starwood Capital give Starwood Property Trust a unique opportunity to be successful over time.