Expected Upside in Lifestyle-Oriented REITs (HCN, SNH, UDR, ESS, CPT, RLJ, DRH, HHC, GGP)

The number and types of real estate investment trusts (REITs) is both large and varied, and, thus, better taken in smaller chunks. Our focus today hits those REITs that offer senior living centers, apartment buildings, and some mixed-use properties.

We’ve also culled some stocks from today’s list because either they don’t pay a dividend — or pay a low dividend for a REIT — or the company has already surpassed its current median target price. The companies we’ve selected are Health Care REIT, Inc. (NYSE: HCN), Senior Housing Properties Trust (NYSE: SNH), UDR, Inc. (NYSE: UDR), Essex Property Trust Inc. (NYSE: ESS), Camden Property Trust (NYSE: CPT), RLJ Lodging Trust (NYSE: RLJ), Diamondrock Hospitality Co. (NYSE: DRH), The Howard Hughes Corp. (NYSE: HHC), and General Growth Properties Inc. (NYSE: GGP).

Howard Hughes Corp. is not a REIT, but its operations are a near-identical fit with those of the trusts. It does not pay a dividend, but its upside potential is significant and we include it here as a “quasi-REIT.”

All data from Yahoo! Finance, and share prices were collected in the early afternoon today.

Health Care REIT, Inc. (NYSE: HCN) has a median target price of $53.00 from 13 brokers. Shares are trading today at $49.61, for an implied gain of $3.39, or 7%. HCN’s forward P/E is 13.11 and the company pays a dividend yield of 5.6%. The stock’s 52-week trading range is $41.03-$55.21, and at today’s price that’s about 21% above its 52-week low and 10% below the 52-week high.

HCN today completed a secondary offering of 12.65 million shares priced at $50/share. The company raised $632.5 million, which it plans to use for future investment, to pay down debt, and for general corporate purposes. Shares had been trading near the target price in advance of the offering. The attractive dividend yield makes the stock worth considering.

Senior Housing Properties Trust (NYSE: SNH) has a median target price of $24.00 from 7 brokers. Shares are trading today at $21.27, for an implied gain of $2.73, or 13%. SNH’s forward P/E is 7.31 and the company pays a dividend yield of 7%. The stock’s 52-week trading range is $19.09-$24.66, and at today’s price that’s about 11% above its 52-week low and 14% below the 52-week high.

Senior Housing Properties pays the highest dividend of any stock in this group and there is still headroom a nice implied gain. The 52-week high is barely above the target price, which could indicate a target price boost soon.

UDR, Inc. (NYSE: UDR) has a median target price of $27.00 from 18 brokers. Shares are trading today at $24.31, for an implied gain of $2.69, or 11%. UDR’s forward P/E is 17.12 and the company pays a dividend yield of 3.2%. The stock’s 52-week trading range is $20.04-$27.26, and at today’s price that’s about 21% above its 52-week low and 11% below the 52-week high.

UDR has been able to raise its rents due to its strategy of buying apartment properties in cities where job growth is better than average and higher priced housing is performing better.

Essex Property Trust Inc. (NYSE: ESS) has a median target price of $145.00 from 20 brokers. Shares are trading today at $135.09, for an implied gain of $9.91, or 7%. Essex’s forward P/E is 20.9 and the company pays a dividend yield of 3%. The stock’s 52-week trading range is $105.60-$148.44, and at today’s price that’s about 28% above its 52-week low and 9% below the 52-week high.

Essex’s target price is lower than its 52-week high and its forward P/E is higher than average as well, indicating that the stock could be priced at very near its full value. The 7% implied gain is further evidence that expectations for growth are not all that rosy.

Camden Property Trust (NYSE: CPT) has a median target price of $65.50 from 18 brokers. Shares are trading today at $59.22, for an implied gain of $6.28, or 11%. Camden’s forward P/E is 17.38 and the company pays a dividend yield of 3.2%.

The stock’s 52-week trading range is $48.68-$69.48, and at today’s price that’s about 22% above its 52-week low and 15% below the 52-week high. Camden has also been nailed with a target price lower than its 52-week high. Its prospects are a little better and it pays a higher dividend than Essex.

RLJ Lodging Trust (NYSE: RLJ) has a median target price of $17.00 from 5 brokers. Shares are trading today at $15.01, for an implied gain of $1.99, or 13%. RLJ’s forward P/E is 25.02 and the company pays a dividend yield of 3.9%. The stock’s 52-week trading range is $11.66-$18.38, and at today’s price that’s about 29% above its 52-week low and 18% below the 52-week high.

The company reported earnings after markets closed yesterday, and EPS came in at $0.30, double consensus estimates. The company completed an IPO in May and the stock price dived in August, but has recovered decently since then. The dividend yield is good and there is still room for gains against the target price.

Diamondrock Hospitality Co. (NYSE: DRH) has a median target price of $9.00 from 15 brokers. Shares are trading today at $8.54, for an implied gain of $0.46, or 5%. Diamondrock’s forward P/E is 11.24 and the company pays a dividend yield of 3.5%. The stock’s 52-week trading range is $6.30-$12.63, and at today’s price that’s about 36% above its 52-week low and 32% below the 52-week high. Diamondrock operates hotels and resorts at the higher end of the scale, where the ‘1%’ live and play.

The company was able to raise room rates and occupancy rates in its most recent quarter, but the share price began falling in August as the vacation season neared its completion. The company is also in the process of selling three properties for about $265 million.

The Howard Hughes Corp. (NYSE: HHC) has a median target price of $75.00 from a single broker. Shares are trading today at $45.97, for an implied gain of $29.03, or 63%. Hughes’ forward P/E is 115.1 and the company does not pay a dividend. The stock’s 52-week trading range is $35.51-$76.83, and at today’s price that’s about 29% above its 52-week low and 40% below the 52-week high.

Though lightly covered, HHC has gotten a lot of attention since coming public about a year ago. While an implied gain of 63% is eye-watering, it’s not as far-fetched to see a price above $50-$55/share once analysts figure out just how this will operate. It should be a REIT, and probably will be some day. It should also pay a dividend. For now, though, investors have to treat it like a growth play.

General Growth Properties Inc. (NYSE: GGP) has a median target price of $15.00 from 11 brokers. Shares are trading today at $14.39, for an implied gain of $0.61, or 4%. GGP’s forward P/E is 14.84 and the company pays a dividend yield of 2.7%. The stock’s 52-week trading range is $10.68-$17.43, and at today’s price that’s about 35% above its 52-week low and 17% below the 52-week high.

GGP emerged from bankruptcy protection about a year ago, after selling off some of is properties to HHC. The company reported quarterly earnings today that were within a penny of EPS estimates, but its outlook for full-year EPS is considerably lower than analysts’ consensus esitmate.

Paul Ausick