Stock Quotes in this Article: AVB, BXP, GGP, HST, PSA

BALTIMORE (Stockpickr) -- Fact: Interest rates are hovering near historic lows right now. That's a problem. It's an even bigger problem for investors who rely on income from their portfolios to keep the lights on.

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There's a solution though: real estate investment trusts, or REITs.

Don't let the name fool you -- REITs aren't a way to get real estate exposure for your portfolio. If you want to invest in rising home prices, buy a homebuilder. Instead, they're purpose-built income-generation vehicles. And with rates scraping the bottom of historic lows, REITs are looking more attractive than ever.

Despite some softness in REIT prices over the last few months, these income machines are heating up again. In fact, 2013 has been the best year for REIT IPOs since all the way back in 2004. Clearly, there's money coming back into this corner of the market now, it's just a question of which ones to buy.

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Solid fundamentals alone aren't enough to justify putting cash into a REIT; chasing yield is a big mistake in this market just like any other. Instead, we're focusing on a combination of sustainable dividend payouts and oversized market strength in today's list.

Without further ado, here's a closer look at five REITs worth owning.

Public Storage

First up is $28 billion self-storage REIT Public Storage (PSA). Public Storage owns around 140 million square feet of leasable storage space spread across 38 states here in the U.S. as well as in parts of Western Europe. That's around 2,400 storage facilities all together, making it the largest storage firm of its type anywhere.

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There's a lot of value in PSA's brand. Because the items stored at PSA's facilities are inherently valuable (they must be worth something for customers to bother storing them), customers are more likely to weigh a brand's reputation before securing space. Public Storage's huge scale gives it advertising and reputational advantages that smaller rivals can't match. Demand remains high for storage facilities, especially thanks to the ongoing flux in the residential real estate market; since homeowners who traded down or prolonged home buying decisions in the wake of 2008 move, PSA should maintain a solid stream of customers.

The real estate business is capital intense, but PSA's strategy of financing its facilities with equity instead of debt has helped to keep the firm's finances solid. Even preferred equity provides much more flexibility than bonds would, and with rates held low for so long, capital is cheap. Currently, Public Storage pays out a 3.4% dividend yield.

Host Hotels and Resorts

$14 billion hotelier Host Hotels and Resorts (HST) isn't your typical REIT. For starters, the firm's fortunes are inseparably tied to the travel industry, a fact that negates some of the pure income generation power than other REITs sport. But investors shouldn't ignore Host Hotels just because of that -- the market likes HST right now.

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Host Hotels owns 118 hotel properties all over the world. For the most part, Host's hotels are mainly skewed toward the luxury and upscale segments, positioning that's paid off in recent years as higher-priced travel spending rebounds faster than price-sensitive bookings have. Host is a hotel owner and operator, but it's not a hotel brand company. Instead, its properties are franchises of other high-end global hotel brands. That diversification gives Host a big backstop that other hoteliers don't have.

Obviously, the cyclical nature of the hotel business can be a drag on Host's earnings. Since hotels are booked on a daily basis (rather than the 20 year leases you might find at a commercial REIT), income generation suffers some. Even so, Host has had its fair share of operational victories lately, and net margins have been pushed up past 8% in the most recent quarter.

With a 2.55% dividend yield right now, Host provides good income exposure with the added benefit of diversification for a pure REIT portfolio.

Boston Properties

Don't let the name fool you -- Boston Properties' (BXP) portfolio isn't all about New England. The $15 billion office REIT has interests in 157 properties all over the country, mostly concentrated in just five markets: Boston, New York, Princeton, San Francisco and Washington, D.C. BXP also owns several retail and residential buildings, as well as a hotel.

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In real estate, they say that location is everything -- and that's certainly been true for BXP. Solid positioning around those popular major metro areas was a major boon in the year's after the Great Recession; while rivals were struggling to keep occupancy rates up, BXP was able to leverage prime locations with stronger economies than the rest of the country. The firm took advantage of depressed prices to pick up some bargain-priced properties, and it also took advantage of low rates to develop new properties. That willingness to take calculated risks has been paying off for investors.

BXP is in solid financial shape, with $11.5 billion in debt offset by around $1.7 billion in cash and investments on its balance sheet. At first glance, that may seem like a high amount of leverage, but it's important to remember that since REITs are required to pay out nearly all of their earnings straight to investors, they can't shore up their balance sheets with retained earnings the way that regular corporations can.

Currently, BXP's earnings amount to a 2.55% dividend yield.

AvalonBay Communities

AvalonBay Communities (AVB) is my favorite housing REIT. I say that for a couple of reasons. First, AVB is the biggest REIT in the multifamily housing business, with 173 apartment communities in its portfolio that span approximately 51,000 rental units (and more are on the way). More important, I like AvalonBay because it generates fundamental performance more like a commercial REIT. Currently, this stock pays out a hefty 3.45% dividend yield.

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The biggest tailwinds spurring on multifamily housing in recent years have been the exact same factors causing concern in other corners of the REIT world: uncertainty over real estate prices and stricter lending policies for homeowners. As more people opt to defer home purchases (or opt to avoid buying in the future altogether), landlords such as AvalonBay benefit. Again, location has been key to AVB's success. Because the firm focuses its portfolio in affluent metro areas from New York to San Francisco, the firm has enjoyed strong demand and occupancy rates.

Demographics are a big driver for AVB going forward, especially as young successful professionals become willing to pay more rent for upmarket locations near work and nightlife. It also doesn't hurt that barriers to entry are high; rivals can't just build up supply in the niche areas where AVB operates, since acceptable building sites are scarce.

If you're going to buy a residential REIT, this is the one to go with.

General Growth Properties

I can't talk about a list of REITs worth buying without mentioning at least one pure-play retail landlord. Ironically, retail REITs aren't looking so hot. They're only second to health care REITs in terms of technical weakness. But one big name is showing some signs of strength: General Growth Properties (GGP).

GGP owns interests in approximately 170 regional shopping malls across the U.S., a business that provides the firm with a combination of consistent lease income and a smaller cut of retail sales at its properties. GGP is a perfect example of why REITs generate income so well -- the firm rents out stores using long-term triple-net leases that keep volatile expenses like taxes, insurance, and maintenance off of GGP's list of responsibilities. The result is fairly predictable income that must be paid out to shareholders each quarter.

To be fair, things haven't always been so rosy over at GGP. The firm went bankrupt in 2009 when the collapse of the credit markets made it impossible for the firm to renegotiate its large mortgage debt load. While the firm re-emerged from bankruptcy stronger (and at a time with borrowing costs at historic lows), the drama is still pretty fresh in the minds of many investors.

That said, it's showing the best relative strength in the retail REIT space right now. That makes it the name to own.

To see these five REITs in action, check out the REITs to Buy Fall 2013 portfolio on Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji