Hotel REIT stocks do not deserve to be in the bottom

Hotel REITs have under-performed the broad REIT market in 2015 (thus far), in a big way, returning 15% less than the broad REITs index.While sector fundamentals forecasts suggest more growth is ahead,

Sourced through Scoop.it from: seekingalpha.com

Although our analyses have shown that hotel REITs are a top performing sector in Q2 (which will likely continue in Q3) operationally speaking, we’ve been struck by the underperformance of their stocks.

Growth stocks such as Pebblebrook, DiamondRock, and Chatham are in the bottom 10 percent of performing REIT stocks year-to-date. The question is, how can a top performing sector, which sports higher growth rates of cash flow generation and profitability than most property sectors, be in the bottom position in terms of stock performance?

Oversupply doesn’t seem to be an industry concern in the short-term (despite being the first concern of a real estate investor). Nevertheless, Pebblebrook’s CEO, Jon Bortz, addressed the concern of a potential oversupply in their Q3 conference call, “Supply continues to be restrained with the three months trend at just 1.2% and our expectation is that demand will likely continue to outpace new supply over the next two to three years.”

Demand has exceeded supply, and although new supply is expected over the next months, supply should not catch up with demand in 2016.

Occupancy peaks could be a concern, but hospitality performance isn’t only occupancy. The sector has reached an occupancy in the low eighties and many people, including some in the industry, don’t believe it can go any higher. In contrast, occupancy is not the only important metric for internal growth since room rates (ADR and RevPAR) can increase.

Self-storage is a property sector that is faring well operationally and in contrast is also performing well in the stock market. Like lodging, self-storage has been faced several times with fears of oversupply, although they don’t seem to be as strong as there are clear bottlenecks in the industry that will slow supply down.

In summary, it’s not clear why investors have been dumping lodging REITs. They recently suffered a major drop after Pebblebrook indicated softer results in Q3 and adjusted down its Q4-outlook. The main reason for the adjustment was softer growth in international inbound travel, lackluster data on global growth, and weaker job growth.

Source: Pebblebrook Hotel Trust (NYSE:PEB), DiamondRock Hospitality Company (NYSE:DRH), Chatham Lodging Trust (NYSE:CLDT), Seeking Alpha

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.

Do REITs Fit Your Portfolio?

REITs deserve to be considered a separate asset class due to unique attributes.REITs have bond-like characteristics such as steady income, interest rate sensitivity, and asset backed protection.REITs

Sourced through Scoop.it from: seekingalpha.com

Do you feel like your portfolio is missing something? Maybe it could be REITs. When someone in the investment management industry has a different perspective on how to handle REITs, we like to let you know about it.

Making REITs a separate asset class in your portfolio is the latest tactic we’ve heard about. Due to their dual nature of both bond and equity-like behavior, it can be argued that REITs deserve separate treatment; especially if you have other real estate assets, REITs can be bundled together under a ‘Real Estate’ bucket.

If you are looking for something other than the traditional 50-50 portfolio (50 percent equity, 50 percent bond), Ben Strubel from Strubel Investment Management states that composing a 45/45/10 (10 percent being REITs), can enhance your portfolio. It appears that the REITs’ equity-like side boosts returns and the bond-like side can reduce your risk. And according to Ben, you will end up better off in the long run with this type portfolio than with a 50/50 one.

If you are interested in this idea, but you don’t yet know anything about REITs, you could try ETFs. The Vanguard REIT ETF (NYSEARCA:VNQ) is one of our most popular and we use it as a benchmark in many of our analyses. Later on, once you feel more confident, you can start testing the waters on individual stocks.

When it comes to managing your portfolio, with or without REITs, it’s all about taking the first step.

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.

Manhattan Real Estate Defies Benchmarks

Nearly a year after New York REIT said it was exploring strategic options, the real-estate investment trust is moving to kick-start a potential sale of the firm or its assets.

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

The management team at New York REIT (NYSE:NYRT) recently announced that they are open to selling the company’s assets. This is certainly in line with past comments stating that there is an inconsistency between the business’s NAV and share price. Jonathan Litt, a leading activist from Land and Buildings Investment Management LLC, believes that New York REIT’s share price is discounted as much as twenty five percent.

The national media has recently reported on how rapidly New York City real estate has increased in value, particularly in the residential sector. You have to wonder how it is possible for a public REIT, which is focused on Manhattan, to be devalued. The management believes that the current market is doing a poor job in valuing the business. Prior to changing course, New York REIT was prepared to reduce their NAV gap by selling off its non-core properties located in Brooklyn and Queens. The company expected a significant gain from the transaction and even planned to buy back shares.

The infamous Manhattan real estate market defies both sector and industry benchmarks. For example, the office segment’s median price-to-FFO is about 13x. Manhattan based REITs, such as Empire State Realty Trust (NYSE:ESRT), SL Green Realty (NYSE:SLG), and Paramount Group (NYSE:PGRE), average a median of 19x. NYRT is trading at 22x.

New York REIT’s management not only defends the assessment that the company is undervalued, they act on it as well. That leads us to believe that the price-to-FFO should be at least 27x. This figure is far closer to the valuation of high growth companies in other categories such as Extra Space Storage (NYSE:EXR) and Federal Realty Investment Trust (NYSE:FRT).

New York REIT has a market capitalization of $1.7 billion. The company has been trading publicly since April of 2014, and paying dividends since May of 2014. They are managed externally and pay disposition fees as a percentage of the contract sales price of the properties. NYRT’s dividend yield is approximately 4.6 percent. Apollo Global Management has recently increased its role in managing AR Capital, NYRT’s external management team. Mr. Litt recently mentioned that the majority of the board members are connected with AR Capital.

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.

SWAY Merger Enthusiasm Wanes

Home-building in the U.S. slipped in August, with declines in both single-family and apartment-building construction.

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

The enthusiasm of the merger between Starwood Waypoint Residential Trust (NYSE: SWAY) and Colony American Homes has waned in recent days following last week’s fifteen percent increase in Starwood’s share price. The merger was announced on September 21, 2015, revealing that Colony’s shareholders would receive fifty-nine percent of the new company’s shares. Due to a high daily selling volume activity, it only took a couple of days from the announcement to lower Starwood’s share price back down to the pre-announcement levels.

The merger of both companies will create a single family REIT with 30,000 homes, thereby positioning the new company as one of the larger players in the industry. Both scalability and consolidation are the main reasons stated for the merger. In the minimum, the new company’s occupancy rate and average rental increase will surpass Starwood’s, and additionally will reinforce their presence in top single-family home rental markets such as California, Texas, Florida, and Georgia. Starwood is contributing approximately thirteen thousand homes out the combined thirty thousand.

This new merger elevates the new company to a level closer to comparison with American Homes 4 Rent (NYSE: AMH), a leading REIT in the category with over thirty-seven thousand single-family homes. Although home building in the US has slipped this past August, the industry is still expecting an upward trend due to the rising number of building permits for single-family properties.

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.

Janet Yellen Tries to Bring Clarity

For months, investors have fretted over how a decision to raise interest rates would hurt real-estate investment trusts. But REIT share prices have outpaced the broader market since the Fed left rates unchanged.

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

Warren Buffet once said that we should buy stocks for the next five to ten years he very well may have been referring to the volatile times that we have recently been experiencing. Perhaps in five years, when the smoke clears, we will look back, and agree with him.

Last week, Janet Yellen missed out on a great opportunity to set the pacing and indicate a path for interest rates. The current highs and lows of the stock market may be attributed to the lack of a clear-cut economic horizon. Yesterday, Yellen tried to correct the market’s trajectory by saying at the University of Massachusetts in Amherst it would be appropriate to raise the rate this year. 

Last week’s “Relief Rally”, as it was referred to by the Wall Street Journal, was proven to have been short lived. We will most likely suffer through another period of vast uncertainty as the Fed meets twice until mid-December. Real Estate Investment Trusts (REITs) that have long-term leases performed far better over the past week. This fact confirms that many investors have gambled on the continuance of near zero interest rates. On the opposite end, REITs with short-term leases, such as Lodging, have performed extremely poorly. If Yellen decides to change the status quo, the market will very well shift directions, causing a shift in the buying pattern. 

We have observed a divide between REIT fundamentals and the behavior of the financial markets. Although the former has been performing well, the latter has certainly been extremely volatile. If the market instability remains, REITs, which issue equity to fuel growth, will suffer from the affected funding. We may just see REITs accompanying the market mood. 

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. Manufactured Home REITs – Prospecting the Best Performing Stocks

UMH Properties highlights its exposure to the U.S. energy boom.This has been a great selling point while the boom has been expanding.It may not be such a good thing as the energy boom turns to a bust.

Sourced through Scoop.it from: seekingalpha.com

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 I 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 flexibility due to the fact that establishing any criteria always lead to particular biases.


Click here – Ranking for Manufactured Home REITs.

Mean Boy, Mr. Market Cornered and Beat Down Lodging REITs Last Week

In year-over-year results, the U.S. hotel industry’s occupancy decreased 1.4% to 70.7%; its ADR was up 3.6% to $122.32; and its RevPAR increased 2.2% to $86.46.

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

Lodging claimed our number one spot for the worst performing year to date Real Estate Investment Trusts (REIT) investments last week. Although the Fed’s decision prompted a buying spree amongst most REIT stocks, it did not positively affect the lodging segment. All of the lodging REITs that we track were painfully singled out and crushed by Mr. Market last Friday. In fact, lodging even took over Timber as the worst performing REIT category in 2015.

Lodging was one of the hardest hit REIT stock segments during the infamous August selloff. However, it was one of the fastest to rebound. Only days after the selloff, lodging REITs bounced back to the levels they had previously enjoyed. It goes without saying that the market has been extremely volatile recently. During the second half of August, the Volatility of the S&P 500 (^VIX) spiked over twenty-five for the very first time since September 2011. I believe that lodging would likely be in first place if there were a chart that measured the volatility of each REIT segment.

I am not typically concerned with short-term market movements. That being said, I have closely followed the highs and lows during the past few weeks, and this extreme volatility has grabbed my attention. The lodging industry has enjoyed a good run in the past. If there is a business type that that will benefit from a rising inflationary circumstance, that sector is lodging. The reason is due to the fact that lodging has an incredible ability to adjust rates quickly.

One of the main factors causing the problem is that many cities have confirmed a weakness in occupancy figures, or their available daily rate has stalled. These dynamics may have caused investors enough concern to stay away. This brings up the question, ‘Has the peak in industry fundamentals already been attained?’

Amongst the eighteen lodging REITS that we research from a valuation standpoint, most price-to-FFO ratios have logged in between 10x, and 15x. In addition, divided yield has recorded as high as 7.7 percent, with a 4.8 median.

Source: 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.