Whitestone REIT: Risks that Potentially Outweigh Rewards

chart01When we reviewed Whitestone REIT last September, the share price was very attractive. It was yielding 10% and FFO multiple was about 9x. Since then, the share price saw an increase of 22%. It is now trading at 9.7 times FFO and has a dividend yield of 8.5%. If you take as reference its most recent peak in April 2015, the stock still has room for growth, but the question is whether it can build up enough muscle to fly high.

Although Whitestone is part of the diversified category, most peers are shopping centers. In fact, its properties are business centers and retail communities that serve entire neighborhoods. The company invests in retail properties that are more resistant to the internet and less vulnerable to economic cycles. They include specialty retail, supermarket, restaurants and medical, educational and financial services.

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Unfortunately, the company has a number of risks that potentially outweigh any reward.

  • Small capitalization – Despite its fast pace to grow, accumulating more than $600 million in acquisitions over the years since its IPO in 2010, the market value remains below $500 million.
  • Geographical concentration – Although the properties are located in high growth areas, the portfolio is concentrated in Houston and Phoenix.
  • Occupation below the peer average – The portfolio occupation has not matched its peers and remains below 90%.
  • Bad debt – Because the company leases small spaces, many of its tenants are small businesses and bad debt can be a challenge. The management believes it is in a downward trend, remaining below 2% of revenues.
  • High leverage – Some of its debt metrics have been really high. For instance, debt to EBITDA ratio is 8.7x, but the management believes it can go down to 7.0x.

Source: Whitestone REIT(NYSE:WSR)

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.

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.