One of the boldest energy predictions of the past 10 years is
about to become reality.
According to the International Energy Agency, the U.S. will
eclipse Russia and Saudi Arabia and become the world's top oil
producer by 2015. And looking forward, that trend is going to
accelerate, with the agency saying that booming production has
the U.S. on track for energy independence in 20 years.
But while that bullish trend will give energy companies a big
boost, it's also going to have a huge effect on local and
regional economies. High-production states such as North Dakota,
South Dakota and Nebraska already enjoy the lowest levels of
unemployment in the country. And as energy companies continue to
add tens of thousands of new employees, those strong local and
regional economies will fuel record demand for temporary housing,
permanent housing and commercial real estate.
That's why I'm bullish on a little-known group of real estate
investment trusts (REITs) that are exclusively focused on strong
regional economies in position to profit from the North American
Not only do these REITs have the ability to produce big gains,
but they also carry some of the industry's biggest yields that
are more than double the yield of the 10-year Treasury.
And that is creating a big opportunity for investors.
Here are two high-yield regional REITs ready to profit from
the North American shale boom.
Investors Real Estate Trust (NYSE:
Investor Real Estate Trust is a mixed bag of commercial and
residential assets, owning and operating multi-family residential
properties and medical, retail and industrial properties. The
REIT is a direct play on some of the strongest regional
economies, with operations in a dozen states across the upper
Midwest and the Rockies.
Investor Real Estate Trust recently opened a 108-unit development
in Minot, N.D., that was more than 80% leased in mid-October. The
company also has more than $200 million invested in current
developments in the high-growth North Dakota market, which has
the lowest level of unemployment in the country.
Long term, Investor Real Estate Trust also continues to divest
its holdings in commercial markets to focus on even higher-growth
opportunities in residential markets. But in spite of the bullish
outlook, this REIT looks undervalued, trading with a forward
price-to-earnings (P/E) ratio of 12, a 25% discount to its peer
average of 16. IRET also carries an outsize dividend yield of
UMH Properties (NYSE:
UMH Properties is another regional REIT cashing in on the
American shale boom. But where IRET is focused on permanent
housing in the upper Midwest, UMH specializes in manufactured
homes in Northeast states such as New York and Pennsylvania,
which are benefiting from the lucrative Marcellus Shale play in
Pennsylvania. Rising single-family home prices and interest rates
have driven record demand for manufactured housing, which can
cost 50% less per square foot than traditional housing.
That's why UMH continues to pursue an aggressive expansion
strategy, acquiring 39 properties in the past three years to
almost double its portfolio to 74 communities with more than
13,000 homes. The REIT is on track to earn $0.57 a share in
fiscal 2013. That gives it a forward P/E ratio of 16, directly in
line with its peers. UMH also carries a massive dividend yield of
Risks to Consider:
As high-yield instruments, REITs are extremely sensitive to
fluctuation in interest rates, which has weighed heavily on the
group in the past six months as rates spiked higher. Both REITs
are also vulnerable to weakness in the energy industry, which is
sector highly leveraged against strong global economic
Action to Take -->
The North American shale boom is driving demand for residential
and commercial real estate in high-production states such as
North Dakota and Pennsylvania. That has both Investor Real Estate
Trust and UMH Properites in position to capitalize, focused
exclusively on strong regional economies benefiting from low
levels of unemployment. And with both REITs carrying huge yields,
both offer a compelling combination of growth and income.