U.S. Industrial/Office REITs – Prospecting The Best Performing REIT Stocks

sample

We recently compiled an operational performance ranking of the best REIT stocks based on the Second Quarter results. Download our report free of charge>>

U.S. Self Storage REITs – What’s the Best Performing Company?

sample

We recently compiled an operational performance ranking of the best REIT stocks based on the Second Quarter results.

We tried to be as straightforward as possible because we want you to understand why particular stocks are leading the charts. We also constructed the operational performance ranking to be concise in order to show how we pick the key drivers of performance. Finally, we ensured… Download Report>>

Extra Space Rose 34 Percent This Year

Here is a list of the self storage REITs ranked by various Q1-2015 key metrics (operations, funds from operations, distributions, debt, valuation, and projections).  The stocks are rated item by it…

Sourced through Scoop.it from: gilverbook.com

When we last looked into Extra Space Storage (NYSE:EXR), we ranked that company as a top pick among self-storage REITs. Since we featured its stock on May 26, EXR has had a great 11 percent run and distributed dividends 26 percent higher in June. Together with CubeSmart (which we have also featured), the company performed well the first seven months of 2015, ending up among the top 3 stock performers among 172 equity REITs we follow. Thus far, EXR stock has risen a whopping 34 percent.

Q2’s results have been as exciting as Q1’s. Year-over-year, total revenues and funds from operations (FFO) grew 16 and 17 percent respectively. Also, metrics that measure internal growth have been scorching hot. Same-store revenue and same-store net operating income (NOI) increased by 9.4 and 12.1 percent respectively; and same-store occupancy advanced 240 basis points to 94.5. Even with the dividend bump, the payout level is around 80 percent — a comfortable level.

Management is so confident that they purchased SmartShop, the country’s seventh-largest storage company, for $1.3 billion — a transaction that increases EXR’s footprint by 15 percent. The company will also end up with about 1,300 stores. In such a very fragmented industry as self-storage, besides growing presence, scale matters in cost reduction. That is particularly notable when marketing costs associated with the Internet have been a deciding factor in drawing in customers. Try google ‘storage’ and you’ll realize how competitive this market is.

Unfortunately, EXR has reached a supreme level from a valuation perspective. Expecting possible strong growth, price-to-FFO has reached 27×, while dividend yield is 3 percent. Certainly, there are advantages in acquiring self-storage stock, which, being of shorter duration like apartments, can raise rates with rising interest rate costs. However, the entry point is too steep.

Written by Heli Brecailo

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 REIT Monogram Residential is in High Gear

Younger renters are less likely to believe that renting is cheaper than owning. Renters with lower income levels have shown a desire to own.

Sourced through Scoop.it from: seekingalpha.com

Monogram Residential Trust (NYSE:MORE) is a newer multifamily REIT that had its initial public offering (IPO) in November of last year. Although the company has only been traded publicly for a short time, the market has demonstrated great faith in the stock. Its price to FFO currently sits at 18x. Monogram is well positioned in Class A properties within coastal and high grown markets that are geared towards young people. Some of their locations exhibit the highest growth rates for employment in the country.

Monogram is also largely benefiting from millennials that are renting instead of buying. Homeownership has recently declined to near twenty-year lows. Some surveys have shown that people in their 20s and 30s still would like to own a home, but have been deterred by several factors. ColoradoWealthManagementFund has explored this topic recently. Please click on the link above for more information.

What makes Monogram different? The company boasts the youngest property age in the market, averaging five years, and total capital expenditure per unit is one of the lowest. In addition, their core FFO, and AFFO have spiked up, by 63 percent, to $0.13 per share in the Second Quarter of 2015 versus the same period in 2014. Monogram has recently announced their quarterly dividend at $0.075 per share, resulting in a secure 58 percent dividend payout.

Monogram does not own one hundred percent of its 55 multifamily communities. Instead, they typically maintain a 50 to 70 percent ownership interest. The same model applies to the company’s aggressive $1.1 billion development calendar, with a company’s total market capitalization of over $3.0 billion. This May, the company acquired joint venture interests in six multifamily communities, and one mezzanine loan for a total of $225 million. As to dispositions, they have completely exited Chicago.

Twenty-five percent of Monogram’s same property NOI is in San Francisco and Los Angeles. This is the company’s largest portion amongst all markets. Washington DC at 16 percent and Texas at 15 percent have also large representation.

Monogram is an extremely tempting high growth stock due to solid fundamentals, great locations, aggressive growth with external partners, and low capex per unit. The only negatives are the short company’s public history, and unproven management in public markets. This REIT stock is worth considering.

Click here to see performance of Monogram and other multifamily REITs

Curated by Heli Brecailo

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.

How’s Manhattan commercial real estate doing?

Manhattan commercial real estate leasing posted another solid quarter at the end of June, with rising asking prices for office space and availability in decline, Colliers International said on

Sourced through Scoop.it from: www.reuters.com

Three New York REITs saw increases in occupancy and releasing spreads during 2015’s second quarter. These three particular REITs are New York REIT (NYSE:NYRT), Empire State Realty Trust (NYSE:ESRT), and SL Green Realty Corporation (NYSE:SLG).

New York REIT

Since the first quarter of 2015, occupancy rose two whole percentage points. This makes current portfolio occupancy 97.2 percent. New York REIT has a total of 3.3 million rentable square feet. Ninety-six percent of that square footage is in Manhattan.

Strong internal growth is evident through the gain in same-store cash NOI excluding hotel business. This year-over-year growth is 12 percent. Re-leasing spreads on a cash basis have risen 30 percent.

There has been a year-over-year 8 percent increase for core FFO per fully diluted share. Year-over-year AFFO has also improved by 9 percent. Payout ratios for both core FFO and AFFO are 83 percent and 94 percent, respectively. Dividends, however, have remained the same since their 2014 IPO.

Empire State Realty Trust

Occupancy climbed 40 basis points to 88 percent from the first quarter. There has been a strong interest in Manhattan office properties; the company saw new lease signings spreads of 56 percent.

Although the core FFO per share gained 13 percent, the dividend rate is still the same from last year and dividend payout ratio is now at 33 percent.

The Manhattan and New York City metro areas make up the office and retail real estate portfolio of ESRT. Office properties in Manhattan total about 8 million square feet of rentable space. Manhattan makes up more that 80 percent of their total portfolio and has an occupancy rate of 86.4 percent.

SL Green Realty

Same-store occupancy for Manhattan soared 110 basis points in the second quarter over first quarter results. Replacement leases surpassed previous rates on the same offices by 11.3 percent. FFO per share was flat.

SL Green Realty, which is New York City’s largest office landlord, focuses on commercial real estate in Manhattan. They have ownership interests in 120 Manhattan buildings covering over 44.1 million square feet.

Urban Edge: Being Boring Is Good For Stock Performance

Is The Vornado/Urban Edge (NYSE:UE) Spin-Off A Good Investment?

Sourced through Scoop.it from: seekingalpha.com

Urban Edge (NYSE:UE), a recent spin off of Vornado Realty Trust (NYSE:VNO), has enjoyed a good run in relation to other REITS stocks following the release of the second quarter results last week. The company has demonstrated strong operating results, reporting in as the third best performing stock in the first week of August. Urban Edge, a $2.2 Billion market cap shopping center REIT, suffered a significant share price drop this year, along with many of its peers. Their year to date stock performance is approximately down six percent.

In terms of metrics, fundamentals, and strategy, Urban Edge appears to be the type of company where each piece is in its proper place. The company makes investments in larger shopping centers, with multiple anchors, in the DC-Boston marketplace. The company is currently doing well by surfing the industry tailwinds. Their dividend yield is fair, dividend payout rate is conservative, and debt is in control. Urban Edge has enough cash in hand to fund their future redevelopment pipeline of $200 million. The average term of new leases is eleven years, which is good news for investors looking for stability.

The fundamentals of the shopping center industry strengthen as more jobs are created and the economy improves. This positive trend reflects in Urban Edge’s recent results. Internal growth, specifically property cash NOI growth, has shown strong results. The company posted a 4.2 percent growth rate in comparison with the same period last year due to two main factors.

1. Financial occupancy increased by 130 basis points to 96.6 percent.

2. Rent spread was 12.0 percent, on a same space basis, for new leases and renewals.

Urban Edge had an increase in General and Administrative (G&A) this quarter compared with the same period last year. The additional costs are associated with operating as a separate public traded company. Although Vornado is currently providing corporate functions (such as human resources, information technology, risk management, public reporting and tax services), Urban Edge is paying a separate executive team.

The company incurred large costs paid in connection with the spin off during the first quarter. Some executives were paid share based compensation; the company also paid professional fees to advise on the transaction.

The additional G&A costs during the second quarter certainly offset the gains associated with internal growth. Funds from operations have remained at $0.30 per share.

Urban Edge is diligent in focusing on redevelopment of its properties by performing renovations and expanding their current footprint. The company has allocated $80 million in redevelopment, which should result in returns between eight and ten percent. We have yet to see results, however revenues increased slightly by two percent. So far this year, Urban Edge has acquired two small properties adjacent to properties the company already owns.

Regarding funding, Urban Edge’s ratio of net debt to total market capitalization is 30.7 percent. Debt to annualized adjusted EBITDA was 5.8 times. The company has approximately $193 million of cash and cash equivalents on hand. They have not drawn on their revolving credit facility.

A rapid valuation analysis shows that Urban Edge is trading at twenty times price to FFO, which is fairly priced for an industry rookie. The company’s dividend yield has been on par with the shopping center sector in general. Urban Edge is helped, as a stand-alone entity, due to the fact that they were a part of Vornado. However, being boring in this industry pays off even more. At this time, I don’t see any reason for rushing towards a stock purchase.

Curated by Heli Brecailo

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.

My Problem With Essex Property In Two Charts

ess logo

I was reading John Rhodes’ concerns with The Walt Disney Company (whose share price dropped following the release of the second quarter results on Wednesday), and I share the same problem with Essex Property Trust (NYSE:ESS), a $15 billion market capitalization REIT in the Apartment sector.

Essex Property Trust did unsurprisingly well during the second quarter of 2015. Their investment strategy focuses on regions with robust job growth and household-forming millennials, where demand continues to exceed supply. Essex being positioned in hot markets like the Bay Area, North California remains a highlight in its property portfolio. Management has said the West Coast housing demand is outpacing supply more than 2 to 1.

Q2 2015 internal growth metrics have been stronger than those of Q2 2014. Average monthly rental rates increased 7.3 percent, and financial occupancy advanced to 96.1 percent (30 basis points). Furthermore, Essex grew on a sequential quarterly basis where REITs in general have grown on a year-over-year basis. Increase in same-property revenue growth, for instance, was 2.3 percent. In the end, the business decided to rev up 2015 same-property net operating income growth, from 9.4 percent (midpoint) to 10.5 percent.

Of the three main regions where Essex operates — Northern California, Southern California and the Seattle Area — the first has shown the highest growth rates. Comparing Q2 2015 with Q2 2014, average monthly rental rate in Northern and Southern California grew 10 and 5.3 percent respectively. Additionally, financial occupancy advanced 60 basis points in Northern California while remaining flat in Southern California.

Management sees some challenges associated with development that can put in check supply expansion. Besides some potential tax on development, they see a less tolerable threshold when comparing development cap rates (5.5-6 percent) with acquisitions cap rates (4-4.5 percent). This is a disincentive for new development.

Stocks are currently trading at a 2.6 percent dividend yield — the lowest among dividend-paying residential REITs. Price-to-FFO remains above its last five-year historic average, at 24.6×. Following Q2 results, stocks were up 0.5 percent, increasing almost 6 percent in July. Low dividend yield and high price-to-FFO is not a good combination.

ess fastgraphs

ess div yield

DOWNLOAD U.S. EQUITY REPORT TO COMPARE ESSEX WITH PEERS

Signup button

Source: Essex Property Trust, Fast Graphs


Written by Heli Brecailo

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.​

First Industrial: Focus On Development, Not Distributions

logo

First Industrial Realty Trust’s share price (NYSE:FR) increased by 5 percent following the announcement of the second quarter results. Q2 2015 was stronger than Q2 2014 as occupancy advanced 210 basis points to 95.1 percent, reaching the company’s goal before the year-end timeline. Also, rental rates increased by 4 percent on a cash basis. Growth in both occupancy and rental rates explains the 4.7 percent increase in cash same-store NOI, which is a strong indicator of internal growth.

Development has been a priority for First Industrial, which has 1.5 million square feet under construction and owns land that can be converted into 7.9 million square feet of industrial developable gross lease area. Acquisitions have not been completely out of the question, but they are targeting only selected areas. FR has developed at around 7 percent cap rates and has acquired and sold around 5 percent cap rates. Were First Industrial a sole property, the cap rate would be in the low 7 percent. Given the risk of development, this figure appears to be fair.

fr occupancy by location

With regard to cities, Minneapolis and Indianapolis have both lagged in occupancy. Minneapolis experienced a major move out last year, and there is new market supply. Indianapolis had a move out during Q1. First Industrial bought land in Dallas, where absorption has been strong and where they expect to erect two buildings, and in Phoenix, where yields are at the higher end — 8 percent. FR also purchased properties in Southern California.

The company seems to want to keep its debt profile conservative — their debt has been given investment grade rating — with debt-to-capitalization at 38 percent. Management explained that they expect two major sources of funding: sale of properties and excess cash flow. Debt doesn’t seem to be one of them.

In terms of valuation, the 2.4 percent dividend yield remains the lowest among industrial REITs, while price-to-FFO is on par with peer median. With dividend payout relative to AFFO of about 50 percent, the company is prioritizing internal growth over dividend distribution.

DOWNLOAD U.S. EQUITY REPORT TO COMPARE FR WITH PEERS

Signup button

Source: First Industrial Realty Trust, Fast Graphs


Written by Heli Brecailo

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.​

Sun Communities: Where The Sun Has Been Hotter

sui same site noiSun Communities (NYSE:SUI) is still enjoying increasing demand for manufactured housing. With its sites significantly concentrated in places where baby boomers can have enjoyable retirements, the company has experienced strong growth, internally and externally. Besides renting sites for manufactured residences — Sun owns the underlying land, infrastructure and common-area amenities — they also rent RV sites and have both seasonal and permanent residents. Most of their revenue is sourced from owners of permanent manufactured residences.

Comparing the first half of 2014 and 2015, Sun Communities has sped up acquisitions as net cash for investing activities increased from $197 to $305 million. During this time, Sun relied increasingly on debt as debt metrics ticked up slightly. Sun says they will retain year-end target level below 7 times net debt/EBITDA (more exactly, 6.5-6.8)

Portfolio NOI increased almost 50 percent in Q2 2015 vs. Q2 2014 mostly because of acquisitions. The number of properties increased from 190 to 251 during this period, and the developed sites spiked 30 percent. Occupancy excluding transient sites increased to 93.5 percent (250 basis points). Management thinks target occupancy is 95 percent.

Same-site performance in Q2 has been strong also. Total Q2 2015 revenues increased 8.2 percent, while total expenses increased 6.8 percent, resulting in an 8.8 percent NOI increase over Q2 2014. Weighted average monthly rent per site for manufactured houses and RVs combined has increased 3.1 percent.

sui sites

Sun will keep seeking acquisitions as ground up developments over the upcoming years should be confined to two or three communities. They expect cap-rate compression in future acquisitions. For the Q2 acquisitions cap rate is 5.8-6.4 percent.

Total Q2 home sales, which represents 12 percent of total revenues, were 576, compared with 521 properties sold in Q2 2014. Average homeowner stay is 13 years, and residents take an average of 15 years to pay off mortgages.

FFO per share increased 10 percent from $0.79 to $0.87 a share, and the company increased its full-year 2015 FFO guidance to $3.62-$3.72 a share — a $0.07 increase at the midpoint.

SUI and its peer Equity LifeStyle (NYSE:ELS) have both been trading at 20× price-to-FFO, with SUI having higher yield at 3.7 percent. Both appear overvalued compared with the company’s history. That’s not a surprise. Stocks with strong fundamentals have been expensive.

DOWNLOAD U.S. EQUITY REPORT TO COMPARE SUI WITH PEERS

Signup button

Source: SUI, Fast Graphs


Written by Heli Brecailo

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.​

NNN Raises Guidance For Acquisitions

As a real estate investor, one problem with long-term net leases during rising-interest-rate periods is that rates are pre-set, but the financing is variable, so the cost of debt rises in sync with interest rates but not with revenues, potentially causing economic losses. Furthermore, if interest rates rise, the economy is supposedly heated, and rent prices can exceed inflation, so lease contracts do not capture that upside.

This concern is always present in one of the most widely recognized public net lease REITs, National Retail Properties (NYSE:NNN), which aims to close lease contracts between 15 and 20 years and whose weighted average remaining lease term is 11.4 years. This explains why, in the next ten years, no single year has a major expiration concentration; in fact, the portion of expiring annualized base rates fluctuates between 0.5 and 6.7 percent.

DOWNLOAD U.S. EQUITY REPORT TO COMPARE NNN WITH PEERS

NNN borrows at both variable and fixed rates on its long-term debt; most of its debt, however, is fixed-rate, with little floating. Regarding fixed-rate leases, the upside may be limited since NNN explains to its shareholders that there are limited rent increases owing to fixed increases and increases in the Consumer Price Index and the tenants’ sales volume.

Internal growth being limited (NNN has not released same-property NOI for Q2), external growth becomes more important for keeping FFO and dividends increasing. During Q2, NNN invested $148 million in 37 properties and sold 3 for $2.2 million. It should also be good news that NNN raised its acquisition target for 2015, considering they will be selective and disciplined.

logo

Management said cap rates for the retail markets have been flat — and also clarified that they have so far had no exposure to some of the retail bankruptcies that had been incurred. NNN has limited exposure to the apparel category, where many retailers have recently experienced challenges. Portfolio occupancy remains at a robust 98.8 percent.

Q2 adjusted FFO per share $0.56 is 10 percent up from $0.51 a year ago. Full-year FFO guidance has been boosted $0.02 up to $2.16-$2.19. AFFO is expected to be $2.21-$2.24. NNN is currently trading at 4.7 percent, and price-to-FFO of 17.3 is not too different from that of Realty Income (NYSE:O).

DOWNLOAD U.S. EQUITY REPORT TO COMPARE NNN WITH PEERS

Signup button

Source: NNN, Fast Graphs


Written by Heli Brecailo

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.​