2 Monthly REIT Funds With 7% To 9% Yields Beating The Market

The yields are 6.7% to 8.8%.

Both funds pay monthly.

They\'ve outperformed the market in 2019, and also since the July market highs.

With the Fed widely expected to continue trimming rates for the time being, the market has taken a shine to certain interest-rate sensitive investment vehicles, such as REITs.

We found two more REIT-focused closed-end funds which have benefited from market support in 2019: Neuberger Berman Real Estate Securities Income Fund (NRO),and Cohen & Steers Total Return Realty Fund (RFI).

Both funds primarily hold US securities. NRO has a 61%/39% split between real estate common and preferred equities, while RFI holds 83% in real estate common and preferreds, plus 17% in fixed income:

Both funds have had a rollicking good time in the market in 2019, racking up price gains of over 30% - RFI has nearly doubled the performance of the S&P, gaining 33.40%, vs. 16.73% for the S&P, while NRO has gained 30.84%.

Both also have outperformed the market in the past month and quarter, but still lag the market over the past year. NRO is up over 5.6% in the past month, vs. -1.7% for the S&P:

They've also both outperformed the market since the September '18 and July '19 market highs, and during the May '19 pullback. RFI outperformed the market during the big Q4 '18 pullback, losing -13.8%, vs. the S&P's -20% loss.

NRO didn't fare as well during the Q4 '18 pullback - it lost -24.12%. However, the Q4 '18 pullback was during a Fed rate-hike cycle, when interest-rate sensitive equities, such as

REITs,

were getting slammed. Things have certainly changed since then.

Leverage and Expenses:

NRO uses 27.9% leverage, whereas RFI doesn't employ leverage. NRO's total expenses of 2.9% are much higher than RFO's .88%. Both funds have a similar amount of negative UNII, while RFI has a larger number of holdings, at 114, vs. 65 for NRO.

At $5.43, NRO has a distribution yield of 8.84% on its monthly $.04 payouts, with an impressive five-year distribution growth rate of 16.09%. RFI pays $.08, and yields 6.69%, with a much lower distribution growth rate of 1.85%.

They both tend to go ex-dividend in the middle of each month, and pay in the end of the same month:

Taxes:

NRO had ~81% return of capital in 2018, and that figure is a bit lower in 2019, at ~76%, while RFI didn't have any return of capital in 2018.

Holdings:

NRO's top REIT sub-sectors are ~45% of its holdings: Infrastructure, lodging, healthcare, diversified, and regional mall REITs, with many other sub-sectors comprising the remaining balance.

Infrastructure REITs Crown Castle (CCI) and American Tower (AMT) are NRO's two top holdings, as 5.4% and 4.3%. CCI is up over 33% and AMT is up over 50% in 2019, which has certainly helped NRO's performance.

(Source: NRO site)

RFI also holds AMT, with a 6.6% position, followed by an industrial REIT - Prologis (PLD) at 5.5%, and Equinix (EQIX) at 5.2%. Like NRO, RFI also holds CCI in its top 10, with a 5% holding. EQIX is up over 56%, and PLD is up over 41% in 2019.

RFI's top sub-sector is also infrastructure, but, unlike NRO, it has a much higher concentration of apartment REITs, at 11%, and data centers, at 9%.

(Source: RFI site)

Valuations:

With both funds outperforming in 2019, they're both priced higher than their average discounts over the past year. NRO has a deeper discount of -4% than RFI, which is actually selling at a small premium of 1.4%.

NROs

has a bigger spread than RFI between its current -4% discount and its one-year average discount to NAV of -8.61% - although RFI is selling at 1.41% premium, it's closer to its one-year average discount to NAV of only -2.14%.

RFI also wins the prize for one-year return on NAV, at 15.09%, vs. 12.42% for NRO and NAV return since inception, at 10.27%, vs. 4.08% for NRO:

Here are the recent Z-scores for NRO and RFI:

All tables furnished by Hidden Dividend Stocks, unless otherwise noted.

Disclaimer: This article was written for informational purposes only, and is not intended as personal investment advice. Please practice due diligence before investing in any investment vehicle mentioned in this article.

I/we have no positions in any stocks mentioned, but may initiate a long position in RFI over the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.