Associated Estates – The Activists Got What They Wanted

cube-639827_1280

Associated Estates Realty Corporation (NYSE: AEC), a multifamily apartment REIT, has been the best performing equity REIT stock since April 1, 2015. The shares have increased in value by 17.6% over the past week and the expectation is they will remain at these levels through the end of the month.

An activist hedge fund, Land and Buildings, has been pressuring Associated Estates since November 2014 to improve share performance. At that time, Land and Buildings harshly criticized Associated Estates management for the following issues:

Signup button

  • Since 1998, the share price has never surpassed the 1993 IPO price of $20 per share.
  • From 2008 to 2014, Associated Estates increased the number of shares from 16 million to 58 million resulting in share value dilution.
  • FFO per share has never risen to levels reached prior to the Great Recession.
  • Using a capitalization rate of 5.9 percent, Associated Estates share price was trading significantly below its NAV.
  • Failure to comply with standard rules of corporate governance, the company allegedly engaged in nepotistic practices associated with the Chairman and CEO’s family.

As a result of this pressure, Associated Estates closed a cash deal to sell all outstanding shares at the premium price of $28.75 per share to Brookfield Asset Management. Associated Estate’s share price spiked to near the purchase price when the deal was announced.

This deal is expected to end Land and Buildings push to nominate board members at the 2015 Annual Meeting of Shareholders to be held this spring. Some days prior to announcing the deal with Brookfield Asset Management, Associated Estates released a formal letter to shareholders detailing the shortcomings of the Land and Buildings board nominees.

Land and Building’s issues were satisfied once the deal with Brookfield Asset Management was completed. Indeed, the purchase price nearly met their target stated last November netting them a tidy 42% profit, at least.


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.​

Public Storage – King of Self-Storage (Series 5 of 5)

chess-603624_1280

As the world’s largest owner and operator of self-storage facilities, Public Storage (NYSE: PSA) is the de-facto leader of the industry. Structured as a REIT, PSA boasts an extensive network of 2,300 facilities across 38 states in the US. This presence has created a very strong and recognized brand. PSA wisely leverages their size to maximize economies of scale and gain access to capital. In a fragmented market where creating a new location is fairly straightforward, these benefits facilitate the company’s continued expansion.

Overall, PSA’s stock has been a solid investment. As a large, well established company, PSA’s growth rate has predictably lagged its smaller cap peers. However, the dividend payout has never been decreased since its IPO in 1996. As a sign of PSA’s strength, the dividend has increased an average of 21 percent per year over the past five years. Investors have also benefited from a lower beta coefficient enabling the stock to weather down markets.

Leaders of their sector and industry earn privileges few companies in the US can boast. In examining PSA’s financials, the company has an impressive debt-to-enterprise ratio of less than one percent. Unlike most REITs, the company chooses to issue preferred shares as a method of financing. Although this comes at a higher cost, PSA justifies the strategy with the following points:

Signup button

  1. REITs, by law, must distribute a significant portion of operating income. Subsequently, conventional debt can become difficult to repay with operating income
  2. Refinancing risks do not exist since sinking fund requirements, maturity date and redemption issues are eliminated
  3. PSA retains the option of redeeming preferred shares at a specified future date.
  4. Preferred shares are not subject to covenants
  5. Dividends on the preferred shares can be applied to satisfy our REIT distribution requirements.

The credit ratings on their preferred shares are “A3” by Moody’s, “BBB+” by Standard & Poor’s and “A” by Fitch Ratings.

Regarding valuation, PSA’s has been on par with previous years. Over the past three years, the Price-to-FFO multiple has fluctuated between 20.0 and 23.7. Although historically high, PSA’s current Price-to-FFO multiple is within its historical range. In addition, historical yield has been hovering around 3.0.

Takeaway

PSA can be a solid addition to balance a portfolio.

Summary

2011 2012 2013 2014 2015P*
Dividends declared per common share, $ 3.65 4.40 5.15 5.60 5.60
Q4 Dividend, $ 0.95 1.10 1.40 1.40
Dividend payout ratio, in percent 65 69 72 72
Dividend yield, in percent 2.7 3.0 3.4 3.0
FFO per share, $ 5.67 6.31 7.53 7.98 8.68
FFO per share (Q4 only), $ 1.50 1.86 2.13 2.17
Alternate FFO per share (Core), $ 6.68 7.44 8.09
AFFO per share, $ 5.65 6.41 7.18 7.73
Revenues – Total, in percent 6.5 5.2 7.6 10.8
Revenues – Same Store, in percent 4.6 4.9 5.3 5.4
NOI – Same Store, in percent 6.6 7.9 8.2 6.7
Year-end Occupancy – Same Store, in percent 89.6 91.4 91.8 92.5
Share Price on 31 December, $ 134.46 144.96 150.52 184.85 200.24
P/FFO on 31 December 23.7 23.0 20.0 23.2 23.1
 *2015 Projection

Next week I’ll post the closing remarks for the self-storage REIT sector.


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.​

How did these U. S. REIT stocks manage so well in Q1-15?

Stokado_Self_Storage1

Yes, you can cry over spilled milk. You should know that, on the whole, REITs did quite well during the first quarter of 2015; what you probably don’t know is that a smaller subset — the self-storage REITs — did even better still, generating a return of 8.8 percent, as opposed to the total returns of several indicators, including:

• S & P 500 — 0.95 percent

• MSCI US REIT — 4.8 percent

• FTSE NAREIT All REITs Index — 4.0 percent

Self-storage has developed into a niche market within the realm of commercial real estate. Its market concentration is low, with only thirteen percent of the facilities controlled by the top ten players and the remainder managed by numerous small businesses.

Self-Storage REITs

The FTSE NAREIT All REITs Index includes four self-storage REITs: Sovran Self Storage, Inc. (NYSE:SSS), Public Storage (NYSE:PSA), Extra Space Storage Inc. (NYSE:EXR), and CubeSmart (NYSE:CUBE).

The four companies share many consecutive years of strong operational performance. As a result of a combination of steady same-store growth and store expansion, their overall revenues have grown by two digits, and net operational income has grown slightly higher than revenues, a sign of how strong their operational efficiency is.

On the cash flow front, funds from operations (FFO) and cash dividends have increased over time and, according to the guidance of management, it is unlikely they will stop in 2015. Last but not least, expansion has been carried out wisely and a healthy debt profile maintained — the company has held its debt-to-enterprise level within reasonable bounds.

Demand drivers

On the macro level, as long as U.S. demographics and the current state of the economy help increase the number of personal possessions which thus need to be stored outside the owner’s residence, self-storage will be in demand. Some believe baby boomers will strengthen this trend by moving into smaller houses. As a result, future growth prospects look positive.

Since convenience is an important reason for choosing a facility (those near home or office are preferred), other drivers of demand have been associated with local market conditions like population growth and average household size and income. Competition and excess supply can also affect occupancy levels and rental rates.

Mixture of self-storage and U-Haul with an office feel

The self-storage concept has quickly evolved into a combination of self-storage and U-Haul with an office “feel.” Operators have begun focusing on generating income by offering additional services like truck rentals, moving and packing supplies, and tenant insurance. To further meet customer expectations, they have adopted innovative products and services, including online and automated kiosk rentals, climate-controlled and wine storage, 24-hour accessibility, customer service call center access and after-hours storage. Self-storage has changed radically.

Signup button

Click here to check out self-storage performance in the first quarter of 2015.


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.​

U.S. REIT – First Quarter 2015 Performance

Release Date: 05 April 2015 (Extra Edition)

Total 170 Equity REITs Ranked by First Quarter 2015 Performance

# Q1-15 Ret – Ranking by First Quarter 2015 Return

# Div Yield – Ranking by Dividend Yield

Share Price, Dividend Yield – As of 02 April 2015


Property Sector: Self Storage

Sector’s Median First Quarter 2015 Return: 8.6

Sector’s Median Dividend Yield: 2.8

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 3 Extra Space Storage Inc. EXR 2.7 15.2 67.87 2.8
2 4 CubeSmart CUBE 4.1 9.4 24.01 2.7
3 1 Sovran Self Storage, Inc. SSS 2.1 7.7 93.95 3.2
4 2 Public Storage PSA (0.0) 6.6 197.31 2.8

Property Sector: Residential

Sector’s Median First Quarter 2015 Return: 5.8

Sector’s Median Dividend Yield: 3.5

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 4 Preferred Apartment Communities, Inc. APTS 5.8 18.9 10.68 6.6
2 20 Essex Property Trust, Inc. ESS 3.4 11.3 229.15 2.5
3 13 UDR, Inc. UDR 6.5 10.4 33.98 3.3
4 9 Sun Communities, Inc. SUI (1.3) 10.4 66.40 3.9
5 17 Equity Residential EQR 1.1 8.4 78.31 2.8
6 1 Bluerock Residential Growth REIT, Inc. Class A BRG 1.4 7.2 13.45 8.6
7 16 AvalonBay Communities, Inc. AVB 3.5 6.6 174.74 2.9
8 19 Equity LifeStyle Properties, Inc. ELS 2.0 6.6 55.14 2.7
9 12 Associated Estates Realty Corporation AEC 3.0 6.3 24.78 3.4
10 15 Apartment Investment and Management Company Class A AIV 4.5 5.9 38.96 2.9
11 10 Camden Property Trust CPT 7.3 5.8 78.52 3.6
12 6 Home Properties, Inc. HME 3.8 5.6 69.97 4.3
13 3 UMH Properties, Inc. UMH 6.4 5.4 10.24 7.0
14 11 American Campus Communities, Inc. ACC 3.9 3.7 43.36 3.5
15 8 Mid-America Apartment Communities, Inc. MAA 6.6 3.5 77.97 4.0
16 2 Independence Realty Trust, Inc. IRT 2.0 1.9 9.44 7.6
17 14 Monogram Residential Trust Inc MORE 1.2 0.6 9.42 3.2
18 21 Campus Crest Communities, Inc. CCG (8.1) (2.1) 6.85
19 18 Post Properties, Inc. PPS 0.1 (3.1) 56.90 2.8
20 7 Education Realty Trust, Inc. EDR 0.9 (3.3) 34.94 4.1
21 5 Trade Street Residential, Inc. TSRE (8.4) (6.9) 7.13 5.3

Property Sector: Infrastructure

Sector’s Median First Quarter 2015 Return: 4.9

Sector’s Median Dividend Yield: 3.9

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 1 CorEnergy Infrastructure Trust, Inc. CORR 3.1 6.9 6.98 7.4
2 2 Crown Castle International Corp CCI (4.4) 4.9 84.15 3.9
3 3 American Tower Corporation AMT (5.0) (4.8) 96.78 1.7

Property Sector: Health Care

Sector’s Median First Quarter 2015 Return: 3.6

Sector’s Median Dividend Yield: 4.6

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 9 Universal Health Realty Income Trust UHT 10.7 16.9 55.86 4.5
2 10 CareTrust REIT Inc CTRE 6.7 10.0 14.25 4.5
3 8 Sabra Health Care REIT, Inc. SBRA 1.4 9.2 33.35 4.7
4 2 Medical Properties Trust, Inc. MPW (2.6) 7.0 14.97 5.9
5 11 LTC Properties, Inc. LTC 3.1 6.6 46.09 4.4
6 6 Physicians Realty Trust DOC 7.1 6.1 17.62 5.1
7 15 Aviv REIT, Inc. AVIV 1.4 5.9 36.75 3.9
8 4 Omega Healthcare Investors, Inc. OHI 1.3 3.8 41.48 5.2
9 14 Healthcare Trust of America, Inc. Class A HTA 0.4 3.4 28.18 4.1
10 13 Health Care REIT, Inc. HCN 0.3 2.2 77.83 4.2
11 16 Ventas, Inc. VTR (1.9) 1.8 73.23 4.3
12 12 Healthcare Realty Trust Incorporated HR (2.7) 1.7 27.95 4.3
13 7 National Health Investors, Inc. NHI (0.2) 1.5 71.57 4.8
14 3 New Senior Investment Group Inc SNR (1.2) 1.1 16.72 5.5
15 1 Senior Housing Properties Trust SNH (0.7) 0.4 22.14 7.0
16 5 HCP, Inc. HCP 2.0 (1.9) 43.99 5.1

Property Sector: Industrial/Office

Sector’s Median First Quarter 2015 Return: 3.4

Sector’s Median Dividend Yield: 3.3

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 26 Terreno Realty Corporation TRNO 3.4 10.5 22.87 2.8
2 23 Alexandria Real Estate Equities, Inc. ARE 2.2 10.5 96.94 3.1
3 35 Hudson Pacific Properties, Inc. HPP 3.8 10.4 33.62 1.5
4 33 Kilroy Realty Corporation KRC 3.0 10.3 76.66 1.8
5 32 Boston Properties, Inc. BXP 2.2 9.2 140.93 1.8
6 1 Gladstone Commercial Corporation GOOD 2.4 8.4 18.65 8.0
7 31 SL Green Realty Corp. SLG 1.1 7.9 129.88 1.8
8 22 Duke Realty Corporation DRE 1.9 7.8 22.04 3.1
9 34 Empire State Realty Trust, Inc. Class A ESRT 6.3 7.0 18.84 1.8
10 12 Columbia Property Trust, Inc. CXP 4.4 6.6 27.23 4.4
11 10 BioMed Realty Trust, Inc. BMR 1.9 5.2 22.55 4.6
12 27 Douglas Emmett, Inc DEI 3.3 5.0 30.32 2.8
13 5 Franklin Street Properties Corp. FSP 1.5 4.5 12.92 5.9
14 28 PS Business Parks, Inc. PSB (0.2) 4.4 83.27 2.4
15 29 First Industrial Realty Trust, Inc. FR 0.7 4.2 21.38 2.4
16 30 Paramount Group, Inc. PGRE 5.2 3.8 19.32 2.0
17 17 Corporate Office Properties Trust OFC (0.1) 3.6 29.53 3.7
18 36 Equity Commonwealth EQC 0.4 3.4 26.61
19 18 Highwoods Properties, Inc. HIW 0.4 3.4 46.29 3.7
20 19 Prologis, Inc. PLD 2.0 1.2 43.59 3.3
21 21 Mack-Cali Realty Corporation CLI 2.5 1.2 19.30 3.1
22 24 Rexford Industrial Realty, Inc. REXR (1.4) 0.6 15.73 3.1
23 7 Monmouth Real Estate Investment Corporation Class A MNR (1.4) 0.4 11.20 5.4
24 15 Brandywine Realty Trust BDN 0.8 15.92 3.8
25 3 City Office REIT, Inc. CIO 1.3 (0.5) 13.05 7.2
26 2 Government Properties Income Trust GOV (2.3) (0.7) 22.92 7.5
27 13 New York REIT, Inc. NYRT 0.9 (1.0) 10.53 4.4
28 11 Piedmont Office Realty Trust, Inc. Class A PDM 1.5 (1.2) 18.83 4.5
29 37 Easterly Government Properties, Inc. DEA (0.3) (1.2) 16.23
30 4 Chambers Street Properties CSG (3.8) (2.2) 7.92 6.4
31 20 DCT Industrial Trust Inc. DCT (3.9) (2.8) 34.98 3.2
32 9 First Potomac Realty Trust FPO (0.5) (3.8) 11.93 5.0
33 6 STAG Industrial, Inc. STAG (5.7) (4.0) 23.58 5.7
34 16 EastGroup Properties, Inc. EGP (4.5) (5.0) 61.05 3.7
35 8 Liberty Property Trust LPT (4.1) (5.1) 36.27 5.2
36 14 Parkway Properties, Inc. PKY (1.5) (5.7) 17.61 4.3
37 25 Cousins Properties Incorporated CUZ (1.2) (7.2) 10.50 3.0


Property Sector: Diversified

Sector’s Median First Quarter 2015 Return: 3.1

Sector’s Median Dividend Yield: 4.6

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 9 Gaming and Leisure Properties, Inc. WI GLPI 8.9 25.7 37.25 5.9
2 23 CoreSite Realty Corporation COR 2.6 24.7 50.41 3.3
3 20 CyrusOne, Inc. CONE 4.7 13.0 31.61 4.0
4 21 Gladstone Land Corp. LAND 1.2 12.6 12.10 3.5
5 7 Armada Hoffler Properties, Inc. AHH (1.3) 12.3 10.58 6.4
6 16 OUTFRONT Media Inc. OUT (0.1) 11.5 29.75 4.6
7 12 Corrections Corporation of America CXW 0.9 10.8 40.36 5.4
8 17 Lamar Advertising Company Class A LAMR 2.0 10.5 59.58 4.6
9 30 American Assets Trust, Inc. AAT 5.5 8.7 43.24 2.2
10 10 GEO Group Inc GEO 1.4 8.4 44.46 5.6
11 22 QTS Realty Trust, Inc. Class A QTS 1.7 7.6 37.06 3.5
12 3 Whitestone REIT WSR 0.6 5.1 15.96 7.1
13 19 Winthrop Realty Trust FUR 1.4 4.7 16.20 4.0
14 24 Alexander’s, Inc. ALX 3.7 4.4 452.99 3.1
15 8 EPR Properties EPR (1.6) 4.2 60.72 6.0
16 6 One Liberty Properties, Inc. OLP 3.1 3.2 24.21 6.4
17 1 NorthStar Realty Finance Corp. NRF (5.7) 3.1 18.22 8.8
18 25 Equinix, Inc. EQIX 3.9 2.7 235.60 2.9
19 32 American Residential Properties, Inc. ARPI 3.7 2.4 18.42
20 2 Select Income REIT SIR 1.2 2.4 25.04 7.7
21 26 Gramercy Property Trust Inc. GPT (0.5) 1.7 28.45 2.8
22 18 Washington Real Estate Investment Trust WRE (2.5) (0.1) 27.88 4.3
23 13 Digital Realty Trust, Inc. DLR (0.6) (0.5) 65.84 5.2
24 15 DuPont Fabros Technology, Inc. DFT 4.4 (1.7) 32.93 5.1
25 29 Starwood Waypoint Residential Trust SWAY 2.7 (2.0) 25.80 2.2
26 28 Silver Bay Realty Trust Corp. SBY (2.4) 16.16 2.2
27 31 American Homes 4 Rent Class A AMH (0.8) (2.8) 16.69 1.2
28 11 W.P. Carey Inc. WPC (0.8) (3.0) 68.72 5.5
29 27 Vornado Realty Trust VNO 1.8 (4.9) 111.21 2.3
30 14 Iron Mountain, Inc. IRM (0.7) (5.6) 37.15 5.1
31 4 Investors Real Estate Trust IRET (2.1) (8.2) 7.40 7.0
32 5 Lexington Realty Trust LXP (9.2) (10.5) 10.05 6.8

Property Sector: Retail

Sector’s Median First Quarter 2015 Return: 2.7

Sector’s Median Dividend Yield: 3.6

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 32 Federal Realty Investment Trust FRT 3.6 10.3 148.45 2.3
2 16 Retail Opportunity Investments Corp. ROIC 9.3 9.0 18.21 3.7
3 28 Acadia Realty Trust AKR 2.1 8.9 34.87 2.8
4 34 American Realty Capital Properties, Inc. Class A ARCP 0.4 8.8 9.92
5 8 Realty Income Corporation O 3.1 8.2 52.05 4.4
6 9 STORE Capital Corporation STOR 3.1 8.1 23.50 4.3
7 27 Simon Property Group, Inc. SPG 2.8 7.4 199.36 2.8
8 20 Brixmor Property Group, Inc. BRX 4.5 6.9 26.44 3.4
9 19 Kimco Realty Corporation KIM 2.2 6.8 26.61 3.6
10 26 Regency Centers Corporation REG 3.7 6.7 68.41 2.8
11 2 Agree Realty Corporation ADC 0.4 6.0 33.23 5.4
12 7 Urstadt Biddle Properties Inc. Class A UBA 1.5 5.4 22.70 4.5
13 22 Equity One, Inc. EQY (0.3) 5.2 26.93 3.3
14 33 General Growth Properties, Inc. GGP 1.9 5.0 30.04 2.3
15 5 Excel Trust, Inc EXL 2.3 4.7 14.06 5.1
16 12 National Retail Properties, Inc. NNN 1.8 4.1 41.60 4.0
17 14 Weingarten Realty Investors WRI (0.7) 3.0 36.03 3.8
18 15 Rouse Properties, Inc. RSE 9.7 2.4 19.22 3.7
19 31 Cedar Realty Trust, Inc. CDR 0.1 2.0 7.56 2.6
20 3 CBL & Associates Properties, Inc. CBL (1.1) 2.0 19.79 5.4
21 1 Spirit Realty Capital, Inc. SRC (1.4) 1.6 12.30 5.5
22 17 DDR Corp. DDR (1.7) 1.4 18.85 3.7
23 23 Macerich Company MAC 0.8 1.1 80.66 3.2
24 25 Taubman Centers, Inc. TCO 6.6 0.9 76.95 2.9
25 24 Saul Centers, Inc. BFS 6.2 0.0 56.92 3.0
26 6 Getty Realty Corp. GTY 0.9 (0.1) 18.27 4.8
27 21 Urban Edge Properties UE (1.0) (0.1) 23.64 3.4
28 10 Ramco-Gershenson Properties Trust RPT (0.6) (0.7) 18.84 4.2
29 18 Pennsylvania Real Estate Investment Trust PEI 2.0 (1.0) 23.08 3.6
30 13 Kite Realty Group Trust KRG (0.5) (2.0) 28.18 3.9
31 4 Inland Real Estate Corporation IRC (0.1) (2.4) 10.79 5.3
32 29 WP GLIMCHER, Inc WPG (4.0) (3.4) 16.40 2.7
33 11 Retail Properties of America, Inc. Class A RPAI 1.3 (4.0) 16.10 4.1
34 30 Tanger Factory Outlet Centers, Inc. SKT (0.8) (4.8) 35.85 2.7

Property Sector: Lodging/Resorts

Sector’s Median First Quarter 2015 Return: (0.7)

Sector’s Median Dividend Yield: 3.9

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 4 Ryman Hospitality Properties, Inc. RHP 1.3 15.5 62.32 4.2
2 13 Summit Hotel Properties, Inc., INN 7.2 13.1 13.98 3.4
3 8 Xenia Hotels & Resorts, Inc. XHR 8.0 8.3 23.21 4.0
4 1 Hospitality Properties Trust HPT 7.1 6.4 33.46 5.9
5 15 FelCor Lodging Trust Incorporated FCH 6.7 6.2 11.94 1.3
6 14 Pebblebrook Hotel Trust PEB (4.1) 2.1 46.33 2.7
7 7 Chatham Lodging Trust CLDT 1.3 1.5 29.67 4.0
8 11 Sotherly Hotels Inc. SOHO 0.1 1.5 7.74 3.6
9 16 Sunstone Hotel Investors, Inc. SHO (4.5) 1.0 16.99 1.2
10 17 Ashford Hospitality Prime, Inc. AHP 3.1 (2.3) 17.09 1.2
11 10 LaSalle Hotel Properties LHO (0.2) (4.0) 39.17 3.8
12 12 DiamondRock Hospitality Company DRH (2.4) (5.0) 14.32 3.5
13 18 Strategic Hotels & Resorts, Inc. BEE (5.3) (6.0) 12.54
14 5 RLJ Lodging Trust RLJ (1.6) (6.6) 31.76 4.2
15 3 Hersha Hospitality Trust Class A HT (3.6) (8.0) 6.55 4.3
16 2 Ashford Hospitality Trust, Inc. AHT (9.7) (8.2) 9.86 4.9
17 6 Chesapeake Lodging Trust CHSP (4.9) (9.1) 33.87 4.1
18 9 Host Hotels & Resorts, Inc. HST (3.9) (15.1) 20.49 3.9

Property Sector: Timber

Sector’s Median First Quarter 2015 Return: (3.5)

Sector’s Median Dividend Yield: 3.8

Q1-15 RET # DIV YIELD # COMPANY TICKER RETURN MAR-15 RETURN Q1-15 SHARE PRICE DIV. YIELD
1 1 CatchMark Timber Trust, Inc. Class A CTT (3.4) 3.5 11.67 4.3
2 2 Plum Creek Timber Company, Inc. PCL 0.0 1.5 43.41 4.1
3 3 Rayonier Inc. RYN (1.6) (3.5) 26.45 3.8
4 4 Potlatch Corporation PCH 0.3 (4.4) 39.70 3.8
5 5 Weyerhaeuser Company WY (5.6) (7.6) 32.64 3.6

Notes from the author This is not a recommendation to buy or sell stocks. The highest-performing stocks are not necessarily the best choice for your portfolio. The purpose of this ranking is to shorten your stock analysis by enabling comparison of stock and sector performance. This is a snapshot of information available on 02 April 2015. Please perform your own due diligence before acting. The equity REITs are constituent companies of the FTSE NAREIT All REITs Index as of 31 March 2015. Companies whose equity market capitalization is lower than $100 million have been disregarded. Button


Did you enjoy our newsletter? Subscribe and receive for free our biweekly newsletter in your inbox. We won’t sell your email address to third parties. It’s our privacy policy! Subscribe for free to our biweekly newsletter


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.​

When the fundamentals aren’t being discussed

Release Date: 04 April 2015 (Extra Edition)

Last week, I posted a ranking of the US top-yield equity REITs. NorthStar Realty Finance Corp (NYSE: NRF) topped the list, sporting an 8.8 percent dividend yield. This week the stock is up slightly (0.7 percent), but the dividend yield continues to be attractive. As such, the stock is worth exploring in a little more detail. However, a look at NorthStar’s recent press releases shows that property fundamentals have not been the main point of discussion.

Background

NorthStar Realty is a Maryland-based diversified portfolio REIT in the commercial real estate realm, allocated largely in the health care and hotel sectors (65 percent of the 31 December 2014 portfolio). Its European assets will likely be spun out into a new NYSE publicly-traded company called NorthStar Realty Europe (NRE) by the second half of 2015. Over the past five weeks, NorthStar has raised US$ 353 million in common equity to buy properties in Europe, including the recently-closed acquisition of a €1.1 billion pan-European office portfolio.

Although it went public in October of 2004 as a mortgage REIT, NorthStar recently flipped into an equity REIT. It still has a debt component, but this is a minor portion of the portfolio (6.6 percent of its portfolio).

This past June NorthStar segregated its management off into NorthStar Asset Management Group Inc. (NYSE: NSAM), and since then both companies have been trading separately. NSAM acts as a brokerage firm for four non-traded REITs.

“Tension” between traded and non-traded

Conflict of interest has been the “elephant in the room” for this REIT. NSAM manages several funds, and there are questions about how management will deal with competing interests between different funds’ shareholders.

For instance, one question is whether NSAM will be able to fairly oversee both a traded fund (NRF) and non-traded funds, which have different asset management fee levels (management, acquisition, disposition and incentive fees). Remember that NSAM manages a pipeline of potential acquisitions and so must choose which fund gets to pick the best deals. This concern was also raised when the company decided to use NRF’s common equity offering proceeds to promote NorthStar Realty Europe’s growth and consequently spin it off. Although management argues that the spin-off unlocks value (as they discussed in their 6 March 2015 presentation, “Immediate value to NRF”), it still isn’t clear what’s in it for NRF.

This is a cloud hanging over NRF that could potentially harm stock performance in the long run. In my experience, concerns over conflict of interest have always driven share prices to discount territory that never realizes full value.

European arm

NorthStar’s European assets are valued at approximately $2.0 billion, and the real estate portfolio is comprised of 50 properties with five million square feet in prime locations, mainly in the United Kingdom, Germany, and France.

There are a number of positive points for NorthStar Realty Europe as part of an investment strategy. European real estate valuations haven’t recovered since the Great Recession. Cap rates relative to long-term interest rates have reached an all-time high. Upside on property value as appreciation of European REITs has historically signaled future appreciation of properties. And, of course, property diversification by country and type is almost always a valuable strategy.

Short interest spike

This March, short interest in NorthStar Realty rose more than 1,000 percent to 57,093,856 shares. About 19.2 percent of the company’s shares are now short.

Takeaway

Recent news associated with changes in management arrangements and the European spin-off has put NRF’s fundamentals on the back burner. I’m hoping that NSAM will refocus its energies on what matters. By the way, NorthStar is one of the few REITs (perhaps the only one) that does not disclose the operational metrics AFFO/FFO in its 10-K report.

Source: NorthStar Realty website, WSJ


Did you enjoy our newsletter? Subscribe and receive for free our biweekly newsletter in your inbox. We won’t sell your email address to third parties. It’s our privacy policy!

Subscribe for free to our biweekly newsletter


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.​