Has Bluerock Been ‘Desperate’ to Grow?

chart01.pngIn addition to a 10 percent dividend yield, Bluerock Residential Growth, a $230 million market cap REIT, has favorable figures in both cash flow generation and profitability growth. When compared to the same quarter of last year, the company’s 2015 Q3 total revenue grew by an impressive 21 percent, property net operating income (NOI) increased 25 percent, same store NOI improved by 8.7 percent, and adjusted funds from operations (AFFO) grew 238 percent. That being said, upon analyzing the Q3 data further Bluerock certainly has been pushing the boundaries.

Bluerock’s distributions have either failed to been covered or are poorly covered depending on the metrics used. The dividend of $0.29 is larger than AFFO per share of $0.22. The company has stated that if they had previously invested the raised proceeds, the AFFO per share would have been $0.32 (pro forma AFFO). In this case, the dividend would be covered, but by not much. The information we would like to convey here is that, in order to sustain the high dividend yield, Bluerock must continue to grow and avoid raising dividends.

chart02.pngBluerock has also been aggressively diluting the shareholder base. For example, over the past twelve months the company has increased their number of common shares by nearly fourfold. Despite AFFO’s impressive growth, the share dilution has resulted in a 2015 Q3 AFFO per share equal to the prior year’s quarter. The bright side is that, if the company fulfills the entire growth potential (pro forma AFFO), the AFFO per share growth will be 45 percent. Not bad.

Bluerock enjoys a leverage ratio that is greater than most if its peers. The total debt to total enterprise figure has increased from 50 percent in Q2 to 56 percent in Q3. When compared to other Apartment REITs, with market capitalization between $200 and $400 million, 56 percent appears moderate since some peers are approaching 70 percent.

In conclusion, Bluerock’s growth does not seem very desperate when we analyze a step further into the numbers and look at it from other perspectives. The company is simply another small market cap REIT that is working hard to get their foot into the big leagues club’s door.

Source: Bluerock Residential Growth RE (AMEX:BRG), Fast Graphs

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

U.S. REITs: Longest Dividend-Paying Stocks — Tanger Outlets

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Tanger Outlets has enjoyed an incredible combination of growth and track record. This shopping centers company has emerged as a top operational performing REIT in our US equity REIT ranking. In addition, shareholders have benefited from a 22 year history of either same or increased quarterly dividends. Although there are a plethora of experts that have recently predicted the demise of shopping centers, Tanger continues to not only survive, but also thrive by expanding their footprint. Just take a nice drive to a property and see it for yourself.

I have to say that shopping centers are not our preferred sector. The category is close to other retail sectors, including free standing, and regional malls, in terms of dividend growth potential. This refers to the potential of an average REIT, nothing more or less. Regardless, Tanger has an ideal profile for people that invest in dividend stocks.

chart02.pngSeveral long dividend-paying stocks have good records in our analysis. Many have accumulated twenty plus years of steady dividend payouts, however the benefits end there for several of them. Many of these same REIT stocks have an average or below average cash flow generation, or profitability. That being said it is fine to enjoy the benefits of a stock’s accomplishment, especially if they have durable dividends. Funding is less costly providing them with access to better deals, and management is more commitment to making the dividend payments. With Tanger Outlets investors can actually have both.

For example, the company’s Q3 performance has been on par with their Q2 figures. Funds from operations (FFO) per share have increased by 13 percent year over year versus 15 percent in Q2. The dividend is still 19 percent higher than it was last year, and the 2015 FFO per share is expected to gain 20 percent.

Although the stock appears to be fairly priced, (price to FFO 15.5x versus the sector median of 16.3x), and dividend yield is at 3.4 percent, which is on the low side for a REIT, it is actually down 16 percent from its peak last January.

Source: Tanger Factory Outlet Centers, Inc. (NYSE:SKT) 

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Multifamily REITs – Expensive Becomes More Expensive

chart01Whenever I hear news reports regarding the U.S. rental market, whether urban legend or not, I tend to remember stories about people sleeping in their cars and showering at companies based in the San Francisco Metro Area. Recently the world has learned that the same principles apply to Washington, D.C. Speaker of the House, Paul Ryan, admitted that he sleeps at his office, and showers at the gym. Well, the next thought that comes to mind is that of Essex Properties Trust.

chart03There are not many multifamily REITs that have the ability to enjoy tailwinds as well as Essex. This Palo Alto, California-based company primarily invests in the same state that it is based out of. Essex has surfed the wave of the housing rental industry with high-end apartments. The company’s success has been fueled by a combination of millennials postponing their first home purchase, shortage of supply, and a presence in housing markets that enjoy high levels of job creation. There is no wonder that Essex made it to the top in our Q2 US equity ranking amongst apartment REITs.

Q3 Performance

Year over year Q3 figures are once again proof as to why this company shines in the sector. Essex has shown a 15 percent increase in Core FFO per share, 10 percent growth in same property net operating income, 12 percent bump in total revenues, and an 11 percent rise in their dividend per share. In summary, these figures are extremely similar to the results in Q2 that catapulted the company to the top.

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Locations

Essex owns and operates 245 properties totaling 58,000 homes that are divided into three areas: Southern CA, Northern CA, and the Seattle, Washington Metro Area.

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Multifamily Fundamentals

The company’s multifamily fundamentals could not be any better for businesses that operate on the West Coast. There have been several recent reports that name Florida metro areas as the best place for job growth, however not all jobs are equal especially in salaries. That being said, San Jose, CA has emerged as a region with one of the highest paying job creation potential.

chart04The cities in which Essex operates have been flagged as areas where demand is greater than supply. There do not seem to be any signs that this will change anytime soon. For example, many of the most expensive single-family home prices are in San Francisco, San Jose, and Oakland. Coldwell Banker formulated a list of the most expensive housing markets in 2014, and an incredible 9 out of 10 were in California. Renting as opposed to purchasing homes in those areas simply makes sense at this time.

When compared with its peers, Essex enjoys the highest same store net operating growth. In Q2, the company shared that title with Trade Street Residential, however that company was acquired by Independence Trust Realty in Q3 this year.

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Debt Profile

In most cases higher levels of leverage are linked to larger levels of default, however this is not a problem for Essex. The company certainly has a great debt profile with a total debt to total capitalization of 26 percent, one of the lowest in the apartment sector. Essex maintains the majority of its debt fixed to in order to reduce interest rate sensitivity. In addition, a significant portion of the debt is unsecured. The company has received investment grade ratings by three credit agencies, and last June Standard & Poor’s reaffirmed their BBB rating, “The outlook is positive. We believe favorable multifamily fundamentals will persist over the near term, with steady demand and manageable new supply in most of Essex’s core markets.”

Threat

A potential tech bubble burst may pose a threat to multifamily properties in Northern California, an area that generates approximately 40 percent of Essex’s net operating income. At last week’s NAREIT conference, Essex made the case for themselves that consolidated industry giants such as Google, Apple, and Cisco create far more jobs than billion dollar startups. Following that thought, analysts that are concerned about the strength of the fundamentals should shift their focus away from the riskier tech companies and towards the more mature.

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Valuation

Essex’s stock yield is currently at 2.5 percent, which is below the sector median of 3.5 percent. The stock does not appear to be attractive, however it needs to be taken into consideration that its total return is close to 12 percent year to date. Having invested in a low yield stock is not necessarily a bad thing after all.

Essex’s price-to-FFO, a P/E for REITs is 24x, higher than most of the company’s peers. This is a sign that Essex has been able to weather the storm of the REIT selloffs.

Takeaway

The apartment sector has been a top performer in terms of cash flow and profitability. Essex Properties have been one of the sector’s most coveted representatives. What was an expensive stock has become more expensive. Despite a high valuation and low yield, the company has been able to deliver stellar performance to its shareholders.

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Source: Fast Graphs, Essex Properties Trust (NYSE:ESS)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Which is Performing Better, First Industrial or Terreno Realty? (Part 2/2)

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Click here if you haven’t read Part 1.

First Industrial and Terreno Realty have been two of the few stocks in the industrial sector that performed in a positive manner year to date. For example, STAG Industrial has decreased by 22 percent this year, Terreno has returned a positive 6.4 percent and First Industrial has returned a positive 3.2 percent. Terreno’s total return is at 11 percent while First Industrial is at 7.1 percent, both strong figures.

Both companies have a strong debt profile. Although First Industrial’s total debt to total capitalization is greater than Terreno Realty’s (38 vs. 28 percent), they are within the sector range. Three credit agencies have rated First’s senior unsecured notes as investment grade.

This is what Standard & Poor’s said about First Industrial’s recent upgrade in September,

“We are raising our corporate credit rating on First Industrial to ‘BBB-‘ from ‘BB+’, driven by strong recent operating performance and improving credit metrics, which we believe are sustainable based on favorable industrial real estate demand.”

Also in September, Terreno closed a large private placement of $100 million in senior unsecured notes at average interest rates lower than First Industrial’s.

Investors have been underwhelmed by First Industrial’s lower dividend yield of 2.4 percent. This is not much greater than a ten-year yield, and is far below the sector median’s 3.7 percent.

On the other hand, First Industrial does have one of the most conservative dividend payouts in the segment. This translates into the fact that the company could easily position itself on par with their peers. First Industrial has kept their dividend payout to Adjusted FFO under 50 percent all along.

chart06In addition, First Industrial has shown generosity by increasing growth rates since it reinstated dividends in 2013. The Q3 dividend is 24 percent higher than the same quarter last year. Still, investors wonder whether management has failed to be generous enough. The company did not make any dividend distribution from 2009 to 2013.

In the end, we have yet to detect a clear winner, although our scorecard has shifted towards Terreno. If you are willing to take a larger risk for the potential reward of a higher yield, then Terreno may be the way to go.

Source: First Industrial Realty Trust (NYSE:FR), Terreno Realty Corporation (NYSE:TRNO), STAG Industrial (NYSE:STAG), Standard & Poor’s

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Which is Performing Better, First Industrial or Terreno Realty? (Part 1/2)

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Two industrial companies have surpassed expectations in our Q2 US equity REIT ranking. Without further ado, they are First Industrial and Terreno Realty. Please note that Prologis, the largest pure play REIT in the industrial sector, deserves attention from investors based on the company’s strength, tenant diversity, and robustness of their results.

chart02That being said we typically tend to explore additional options by highlighting companies that are outperforming their peers, regardless of size. That is why we featured Terreno Realty’s robust Q3 results last week. Today we will compare their results with First Industrial to answer the question of which company has performed better in Q3.

chart03Terreno Realty is certainly on the lower end of the small capitalization spectrum with a market cap of approximately $1.0 billion. In comparison, First Industrial enjoys a market cap of $2.4 billion, and has a larger footprint with 629 properties containing 64 million square feet in gross leasable area. Terreno owns 141 properties with a total of 11 million square feet.

Regarding location, First Industrial’s top three markets, as calculated by rental income, are Southern California, Pennsylvania, and Chicago representing about 30 percent total. On the other hand, Terreno has a far more concentrated portfolio because they focus on six major coastal markets only. All of the company’s properties have been distributed within those markets, with Northern New Jersey/New York City and Washington, D.C./Baltimore accounting for almost half. Both REITs tend to invest in warehouses.

chart04Both companies have been performing well in different areas due to their size and life stage. For example, Terreno’s year over year growth in revenues has been at an extraordinary level, showing 46 percent in Q2, and 37 percent in Q3 respectively. The company also has a strong FFO per share growth, which is one of the metrics that is closely related to dividend distribution potential. Terreno has been on an acquisition spree recently that is comparable to STAG Industrial’s. They plan to become as large as First Industrial in the mid term.

First Industrial has enjoyed a more tamed approach to their revenue growth rate that falls between 7 and 8 percent in Q2 and Q3 (year over year), but a stronger FFO per share growth rate and increased dividends. The company mainly invests in development along with a few selected acquisitions. Terreno does not engage in ground up development.

To be continued…

Source: First Industrial Realty Trust (NYSE:FR), Terreno Realty Corporation (NYSE:TRNO)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

This Retail REIT Can Grow Dividends

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It is difficult to avoid getting excited with Agree Realty, whose stock, as we agreed last month, is a high-potential dividend growth stock. In a sector featuring both National Retail Properties and Realty Income, it is refreshing to see a bold, but riskier, alternative to both options. Our ranking for best-performing Q2 equity REITs showed Agree to be a leading stock, and can probably be on the top of our Q3 ranking as well.

Strategy

Agree invests in net lease retail properties (with tenants covering most property costs), on which they have focused completely over the past years. The business has virtually become a pure play in the sector. Besides, the tenant roster is 54 percent investment grade. Except for Walgreens (19 percent of annualized base rent), its portfolio has no major tenants, nor any major lease expiration percentages in the upcoming years.

Moving from concentration

Though total market capitalization has not reached $1 billion, Agree has been composing as diverse a portfolio as possible. A hard-learned lesson from Borders, which filed for Chapter 11 bankruptcy protection in 2011 and represented 20 percent of the total annualized base rent, has influenced them. Agree has over 260 properties spread over the country. This year’s acquisitions are spread across 21 states, leased to 35 tenants operating in 19 diverse retail sectors. The underwritten average capitalization rate on the company’s acquisitions was about 8%.

Q3 results

Highlights have included almost 100 percent occupancy and 8 percent dividend-per-share increase year over year. Total revenues have increased 30 percent, while total debt-to-capitalization has been stable (mid-thirties). The one “disappointment” has been Adjusted FFO per share, whose growth from Q2 fell from 13 to 7 percent.

In conclusion, applying the same rules as those for Q2 ranking, Agree’s results have been as good as those of National Properties.

Companies: Agree Realty Corporation (NYSE:ADC), National Retail Properties (NYSE:NNN), Realty Income Corporation (NYSE:O)

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Does Terreno Mean ‘Premium’ Territory?

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From a dividend generation standpoint, Terreno Realty Corporation (NYSE:TRNO) was our best performing industrial Real Estate Investment Trust (REIT) in Q2. The company continues to show positive figures into Q3, especially the metrics associated with cash flow generation and profitability continuing to line up with the previous quarter’s numbers. Few metrics, such as occupancy, have decreased. Please review our Q3 versus Q2 comparison as listed above.

Terreno’s revenue, FFO per share, and dividend per share have shown two-digit growth, although their portfolio occupancy decreased from 94.4 to 90.2 percent (Q2 vs.Q3). The same thing occurred to the company’s same store occupancy due to 271,000 square feet of vacancy at the Interstate properties in the New Jersey/New York market. This is one of the six markets that company operates in. In addition, there are 85,000 square feet of unoccupied space at property that is being held for sale.

Terreno’s stock ($TRNO) has performed particularly well with a return of 6.4 percent year to date. The median sector return is a paltry negative 3.6 percent. The company’s dividend yield reports in at 3.3 percent for a 3.7 percent sector median. When all is said and done, a total return of 8.7 percent is fairly good when compared to the major indices.

Terreno Realty Corporation maintains an aggressive acquisition spree, although it has decreased a bit from previous years. This year they have added 1.8 million square feet which contributed to a 13 percent net increase in overall size. Last year Terreno grew more than one third in size. Management reaffirmed their intermediate goal to triple their US$1 billion assets in a letter to shareholders earlier this year. They plan to fund this with two thirds equity and one-third debt.

We were approached by several readers regarding the high valuation of the company. Terreno has definitely entered into premium territory with a price-to-FFO of 24x in a category where the sector median is at 18x. In addition, the company’s dividend yield of 3.3 percent is slightly below the median. Due to Terreno’s recent performance and aggressive growth goals, we believe that the company will remain in this territory for the long run.

Stay tuned! Our US equity REIT ranking is finally close to release.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.