This Growth REIT Hasn’t Seen Share Price Growth

chart01

Download our exclusive REIT Report

Different from several multifamily REITs, Bluerock Residential Growth REIT hasn’t seen its share price soar in 2016. It also has a noticeably higher yield than its peers. Eventually, the company has faced the challenges typical of other similar, small cap REITs, including higher leverage, frequent public offerings, and building a long-term investor base.

Even with the steep growth over the past quarters, it has been eye-catching that the share hasn’t managed to make up some ground. In fact, its share price has fallen by 14% over the past year, while the company doubled its net operating income. Today, the stock is trading with a dividend yield close to 10%, which always tops our dividend yield ranking for the sector.

In order to fuel its expansion, the company hasn’t been shy, opting to capitalize on several funding fronts. In 2015, they performed three public offerings. In addition, they have diversified their sources of funding by issuing preferred shares. They also pushed the debt levels up higher and closed Q1 with a total debt to total enterprise value of 58%.

With a market cap just under $300 million, the company is looking to form a solid institutional investor base that can support its continued growth. Currently, less than 50% of the shares are held by institutional and mutual fund owners. As a result, it appears that the company still has a long way to go to complete its task compared to established REITs.

chart02.pngThere are reasons to believe this REIT might struggle to get more support, primarily because it is externally advised and it makes distributions beyond its adjusted funds from operations. On the other hand, the company has made its presence known in sunbelt markets, where job growth has been prominent.

To summarize, Bluerock Residential is hungry to grow and seems to be hitting the right nails. However, due to its shortcomings, it hasn’t managed to convince enough investors to back its aggressive growth plans yet. The stock is a patient buy.

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

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.

Best Performing REIT: 90% of Revenues Depend on Chapter 11

chart01The best performing equity REIT stock of 2016 is a company whose major tenants are somehow under Chapter 11. In spite of this, the stock returns have exceeded those of data center and net lease retail. While the stock has been under immense pressure, tenants have, so far, remained current on lease payments. Consequently, the company is still paying regular dividends. That company is CorEnergy Infrastructure Trust, a small cap energy REIT where high risks have yielded high returns.

Since 90% of rental revenues depend on the outcome of the Chapter 11 proceedings, CorEnergy has been submerged in a sea of uncertainty. Falling gas and oil prices threw the tenants’ parent companies, Ultra Petroleum and Energy XXL, in disarray. In April, both companies had no choice but to file for bankruptcy. There’s only one difference. In Energy XXL’s case, the tenant hasn’t filed for relief, while in Ultra Petroleum’s case, it has.

A potential rejection of Ultra Petroleum’s lease by its tenant could lead CorEnergy to cut its dividend. Ultra Petroleum’s lease accounted for 40% of the total lease revenues in Q1. Not even its dividend payout rate of 70% could absorb this revenue loss. However, management’s position is that the bankruptcy has been expected by the market and the leases will be preserved due to low lease expense and the importance of the assets to the tenants.

Meanwhile, investors seem to be confident that the company will be able to sail through the bankruptcy. Obviously, the share price is significantly down from its 52-week, but the interest in the stock has been high, given its performance this year. With a dividend yield of 14%, the 2016 total return has been north of 60%. Investors are, obviously, hoping that management is right and the bankruptcy proceedings will be nothing more than a bureaucratic milestone.

Source: CorEnergy Infrastructure Trust(NYSE:CORR), 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.

HCP Spinoff Reduces Risk for Its Investors

chart01.pngSignificant changes are an understandable source of concern for investors. However, HCP’s decision to spin off both its skilled nursing facilities and its assisted living facilities should not be interpreted in a negative light. After all, it promises to boost its financial performance by reducing its risk for its investors, which is what its management should be seeking under the current circumstances.

In short, the U.S. government has become more and more concerned about rising healthcare costs in recent times, which in turn, has prompted more and more scrutiny of the healthcare sector. Unsurprisingly, this has resulted in the detection of more and more cases of wrongdoing, which has sent tremors running through investors with investments in healthcare REITs reliant on government reimbursements.

HCP has had its multiples brought below the healthcare REIT average by these incidents involving one of its most important tenants, HCP ManorCare. Last year, the U.S. Department of Justice accused HCP ManorCare of requesting government reimbursements to which it was not entitled. This February, HCP announced impairments due to the tenant’s poor performance.

While HCP might not be able to predict the repercussions of the U.S. Department of Justice claims, its status as a large cap REIT with an investment grade rating provides muscle power to contain it. Even after the spin-off, the REIT will remain large.

HCP’s new portfolio will be equivalent to 73 percent of the total revenues, coming from senior housing, life science, and medical offices, thus ensuring the stable revenues from private pay sources that are most attractive to investors who want to earn an income while also playing it safe. In contrast, the spun-off portfolio of both skilled nursing facilities and assisted living facilities will bear the higher risk, and potentially higher rates of return, thus ensuring its appeal to investors who are more willing to take a chance.

Summed up, HCP’s decision is a sensible one that will make its portfolio safer by divesting its sources of risk, thus putting it in an excellent position to reach parity with other healthcare REITs.

Source: HCP, Inc.(NYSE:HCP), 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.

This Speculative Hotel REIT Needs a Positive Agenda

chart01

Download our exclusive dividend yield report

Investors reacted well to Ashford Prime’s Q1 performance and the company’s share price rose by 9% last week. For a stock that has been one of 2016’s worst performers among equity REITs, the stock jump should not come as a surprise. Its multiple has been low compared to peers and shares are down 23% from its 52-week high.

The stock is clearly undervalued. When the company went public in late 2013, it enjoyed a multiple close to 20 times AFFO; currently, the multiple hovers around 7.  Not that the stock will climb up to that level, but it has room to approach the hotel REIT average, which is around 10. This makes a potential rally of 40%.

The issue lies on what is holding back the investors, so I’m going to offer some thoughts for a positive agenda:

Management should move past the spat with Sessa Capital, a major shareholder – It is beneficial for shareholders that the company settles any legal disputes with Sessa Capital, even if the company manages to elect its slate of directors in June’s annual meeting of stockholders. Judicial disputes can be full of surprises and hidden costs, which will ultimately impact this small cap REIT’s funds from operations.

Management should bring down termination fee – Blatant signs of greed grab investors’ attention and create a negative sentiment against the company. The agreement between Ashford Prime and its external advisor includes a high termination fee that should be brought down to market standards.  The estimate fee of $5-6 a share is preposterously high compared to the share price of $13.This harms Ashford as whole, even if its major hotels, located in competitive markets, have been well rated.

Management should improve governance – As Sessa Capital hammered over and over again, the company should improve its standards of governance. They should take this opportunity in which they’ve been under scrutiny and address major issues.

Source: Ashford Hospitality Prime, Inc(NYSE:AHP), fixashfordprime.com, 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.

 

Investors Have Taken Notice of This Net Lease REIT

chart01Although equity REITs did not fare so well in April, May seems to be a different story so far. Equity REITs managed a median return of 4.1 percent last week, with all sectors managing a positive return while 159 out of 170 REITs managed the same. Something that is particularly interesting because the performance of the S&P500 was flat across the same period of time.

As a result, it is no coincidence that more and more investors are taking note of equity REITs, with particular attention being focused on Agree Realty last week, which has made a comeback that delivered rich rewards for those that placed their trust in it. In short, Agree Realty is a net lease retail small cap alternative to ‘O’ and ‘NNN’, with a bad history associated with tenant concentration. Back when Borders declared bankruptcy in 2011, it harmed the REIT because Borders represented 20% of its annualized base rent. Since then, Agree Realty has worked on reducing its tenant concentration, though it is interesting to note that it has a pharmacy tenant concentration, as shown by the example of Walgreens, which still makes up 17 percent of its ABR.

Regardless, Agree Realty has managed to be one of the highest-performing net lease REITs with a 27 percent return in 2016, beaten out by Seritage Growth, which is a relatively new REIT that is still in its infancy. In general, net lease REITs have enjoyed impressive returns in spite of the fact that its sector experienced moderate growth, which was much more moderate than that of data centers, for example.

With that said, Agree Realty is not the only REIT of interest for curious investors. For example, Summit Hotel Properties managed a 11 percent increase in share price last week, partly because of its strong performance that was made public last week. The company reported a 13 percent increase in dividends and a 21 percent increase in AFFO per share in Q1. Similarly, Ashford Prime enjoyed a 9 percent increase in its share price last week. They reported a 46 percent increase in its AFFO per share in Q1 in spite of its ongoing struggle with one of its biggest shareholders over its future. In contrast, Winthrop Realty Trust lost 18 percent, which is no surprise since it is currently undergoing liquidation.

Source:Summit Hotel Properties, Inc.(NYSE:INN), Agree Realty Corp.(NYSE:ADC),Seritage Growth Properties(NYSE:SRG),Winthrop Realty Trust(NYSE:FUR)

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on May 06, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of April 29, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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: Data Center Up, Self Storage Down

chart01

Download our exclusive dividend yield report

In a week during which several REITs have released their Q1 results, REIT stocks were slightly up. While data center stocks were the best performing sector, self storage was the worst. This week’s highlight was the merger between two office REITs.

Among data center REITs, CoreSite Realty shares saw a 5.2% increase in the last week when the company announced stronger results for the year. They also saw a 4% increase in their 2015 FFO per share guidance. The FFO multiple of the $2.3 billion market cap company is currently around 22 times.

For yet another week, self storage stocks fell. We’ve been noticing the formation of a negative sentiment against this sector. Despite the high multiples, this is the first time we have seen a real movement to dump the stocks, which fell, on average, by 10% in April.

For instance, Public Storage, the largest self storage REIT, saw a 6% increase in dividends during the last week, yet this wasn’t enough to excite the public. Despite the good Q1 results, their shares were down by almost 5%. Rather than investing in the common, many investors have opted to invest in their preferred stocks.

However, last week’s highlights definitely involved office REITs. Cousins Properties and Parkway Properties entered into a stock to stock merger where Parkway shareholders will receive 1.63 shares of Cousins stock for each share of Parkway stock they own. Following its merger with Cousins Properties, Parkway shares went up by 9.2%, while Cousins shares went down by -0.3%.

Right after the merger, the Houston assets will be spun off into a new publicly traded REIT called HoustonCo. The merger will produce a larger Cousins, which will focus on the Sun Belt markets, while excluding exposure to energy markets. HoustonCo will be an independent and internally managed REIT led by some Parkway executives.

On a final note, the shares of Investor Real Estate Trust plummeted by 13% when the activist Land and Buildings went short. L&B believes IRET has 35% downside due to North Dakota’s struggling energy market and a weak apartment market.

Source: CoreSite Realty Corporation(NYSE:COR),Public Storage(NYSE:PSA),Cousins Properties Incorporate(NYSE:CUZ),Parkway Properties Inc.(NYSE:PKY),Investors Real Estate Trust(NYSE:IRET)

Disclaimer: This is not a recommendation to buy or sell stocks. The highest-yield stocks are not necessarily the best portfolio investment choice. The purpose of this report — which is essentially a snapshot of information available on April 29, 2016 — is to reduce your stock analysis by enabling you to compare stock and sector performance. Please do your own due diligence before making any investment decision.

As of March 31, 2016, the equity REITs are constituent companies of the FTSE NAREIT All REITs Index. Companies whose equity market capitalization is lower than $100 million have been disregarded.

This report 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. 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: Market Sentiment Prior to Q1 Results Release

 

chart01Another quarterly results period has begun, leaving investors anxious to determine where they will place their next investments. I have never been one to invest solely on market sentiment. However, this sort of context is most important when I’m identifying the best investment window. Week in and week out, I’ve been following the ups and downs of the market, while also paying attention to what kind of news has been driving the movements. Consequently, I quickly selected some of the market sentiments that have been formed pre-results over the past few weeks. Now, there’s just one question. Will they hold steady until the end of the period?

These are the following market sentiments toward equity REIT stocks.

Healthcare and Hotels: Due to a large number of stocks trading above average dividend yield, many have looked to stocks in healthcare and hotels to make their long-term bets. The sentiment appears to be correct. However, I don’t want to be a killjoy, but most of these stocks have a reason to be undervalued, so it’s important to pinpoint the causes first. The field here is certainly wider than in most sectors, but I’d recommend exercising some caution and patience before venturing out.

Realty Income: It is upsetting to see the rich universe of equity REITs condensed into a sole stock, but that’s what many investors do. They limit themselves to this stock. For that reason, opinions about how overpriced it is abound on the internet. Since its well established peers in freestanding retail have also appreciated, this sector has become overcrowded. So, the sentiment is right about it being overcrowded. I would definitely stay away from the popular choices.  

Self Storage: It had been awhile since self storage didn’t fall farther than the rest of the market. However, this happened last week. Most stocks fell south of 4%, which I see as a sign of saturation. Also, while I don’t entirely rely on equity research analysts, it’s worth noting that Goldman dumped Public Storage this week. In summary, I could see some movement geared toward selling self storage.

In fact, the strength of the self storage sector is something to pay attention to with the next releases. There doesn’t appear to be blatant signs of oversupply in the market, which makes me believe the fundamentals are still good. For this reason, I wouldn’t recommend shorting it.

In our dividend yield chart, self storage has had the lowest average dividend yield…even lower than the data centers. This is a sign that it could have reached a peak. I’m not sure if it will go down anytime soon, but lower yield and a higher multiple aren’t a good combination for investors willing to buy. Also, given the limited number of options, I haven’t identified an alternative that feeds into the same fundamentals.

Please let us know if you have identified any other sentiments that are not listed above.

Source: Realty Income Corporation(NYSE:O),Public Storage(NYSE:PSA)

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.