2 REITs: One Safe, One Speculative

Real estate investment trusts (REITs) can offer terrific dividends and stability to your portfolio, depending on the type of real estate in the portfolio. Today I�ve identified two REITs that are going through a transition. If successful, the moves could mean big capital gains on top of generous dividends.

Getty Realty Corp.

Getty Realty Corp. (NYSE:GTY) operates in a very interesting space — one that I like a lot. The company owns and leases retail motor-fuel and convenience-store properties and petroleum-distribution terminals. GTY�s properties are leased or sublet to distributors and retailers that sell gasoline and various motor-fuel products, convenience store products and automotive-repair services.

Getty owns 1,000 properties in 20 states and leases an additional 167. Some readers may be old enough to recognize the Getty name. Those who aren�t nonetheless recognize the major oil-company names that your local gas station/convenience store operates under. It�s where you fill your tank and get your beef jerky.

In 2000, a spin-off that handled Getty’s petroleum-marketing business and had almost 800 properties in its portfolio filed for bankruptcy. Getty repossessed those properties. It plans to do all of the following to get them generating revenue again: make short-term compensation arrangements with the existing occupants, sign fuel-supply agreements with third-party fuel suppliers, arrange long-term leases with gasoline distributors and sell 160 properties.

Getty believes this will eventually result in long-term triple-net leases for tenants, of which 282 have already been signed. The repositioning process will cost Getty some money and won�t bring in as much in rent, though.

If Getty can stabilize the portfolio, GTY is undervalued, with significant capital gains to be had. From what I can tell, Getty does appear to have the cash flow needed to pay its 25 cents-per-share quarterly dividend, which is a 6.2% yield.

If the company can�t pull it together, that dividend will be cut back — and so will the share price.

Federal Realty Investment Trust

Maybe you aren�t so keen on making a speculative bet. That�s fine. You can play it safe with�Federal Realty Investment Trust� (NYSE:FRT). The company owners, manages, develops, and redevelops retail and mixed-use properties. It holds 87 of them, representing 19.2 million square feet, across 14 states.

How safe is Federal Realty?� It has been in business since 1962 — and has increased its dividend for 44� years�straight! The company is seeing strong numbers currently, with same-store net operating income up 5.5%. The REIT has also raised its guidance on 2012 FFO.

The stock has returned 150% since its financial-crisis low and continues to make new highs. It�s as solid a REIT as you will find, and it pays $2.76 per share annually, which currently represents a 2.7% yield. �This REIT has a place in either a regular or retirement portfolio. If you happen to be an options player, it�s solidity also allows you to enjoy scoring premiums by selling covered calls.

As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Capital, Inc., which brokers secure high-yield investments to the general public and private equity. You can read his stock market commentary at SeekingAlpha.com. He also has written two books and blogs about public policy, journalistic integrity, popular culture and world affairs.