Speculative REIT Stocks Jump Again

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CHECK THE REPORTS FOR DIVIDEND YIELD BY SECTOR AND WEEKLY RETURNS.

It was another great week for equity REITs this week as more than 85% of the stocks rose. Though January and February were bad months (January worse than February according to FTSE NAREIT All Equity REITs Index) last week was very encouraging with the stocks we track rising by 4.1%. There have been winning streaks for a few weeks in a row yet that could be ruined by another increase in interest rates.

It is no surprise at all that the most volatile stocks are back as the top performing ones. When the market is strong, these stocks markedly over perform. Conversely, when the market is down, these are the worst under achievers. Basically, when they are good they are really good and when they are bad they are really. The companies that can be included in the list of volatile stocks are the likes of the CorEnergy Infrastructure Trust, STAG Industrial, NorthStar Realty, as well as Ashford Hospitality Prime.

Although the speculative and volatile stocks have spent more time decreasing in value as opposed to increasing in value over the past several months they have become attractive investments. They don’t fit the mold of what a REIT is supposed to deliver in terms of dividends, but they should perform better by the end of this year.

Take Ashford Hospitality Prime as an example. The company’s stock has decreased by 23% in 2016, despite regaining 13% in the course of last week. That increase is quite surprising given that the company is involved in legal wrangles with one of its own important shareholders, Sessa Capital. Sessa has sued Ashford over governance issues and Ashford sued them back alleging false claims.

After Cushman & Wakefield assessed assets as been worth $18 a share, the price of NorthStar Realty Europe increased by 18% last week. By the end of trading last Friday, each share was worth $12. Although the company did not go into detail about how its assets had be given that value, if they were too optimistic then the stock would still be worth having.

STAG Industrial stock increased by 10% last week. Their investment strategy reminds me of the exact opposite of a famous real estate adage that states “buy the worst homes in the best neighborhoods.” Technically speaking there is nothing wrong with buying the best warehouses in under developed markets, it is simply a method to flee away from overcrowded markets, and avoid fighting other investors over a few good deals. However, this means additional risk.

On another note, two companies have ceased trading shares on the New York Stock Exchange. Campus Crest were taken over by Harrison Street Real Estate Capital, while American Residential Properties completed a merger with American Homes 4 Rent.

STAG Industrial, Inc.(NYSE:STAG), Northstar Realty Europe Corp.(NYSE:NRE), Ashford Hospitality Prime, Inc(NYSE:AHP), CorEnergy Infrastructure Trust(NYSE:CORR)

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 March 04, 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 January 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.

NRF Shareholders, Don’t Celebrate Too Early

chart01Last Friday, NorthStar Realty Finance (NRF) announced its Q4 results, along with several initiatives intended to close the gap between its intrinsic value of $25 (per management) and share price of almost $13. The announcement brought a breath of fresh air to NRF, as well as its external manager, NorthStar Asset Management (NSAM) and spinoff European branch, NorthStar Realty Europe (NRE).

Last week, NRF increased by 24%, while NRE increased by 7%, and NSAM increased by 5%. Following the spinoff of NRE in late October 2015 and a 1-for-2 reverse stock split at the beginning of November, NRF share prices plummeted by more than 50%, reaching a 52-week low of $8.38 on February 9.

There were three major takeaways from the announcement.

  1. NFR is in the process of selling almost $2 billion in assets, which should raise approximately $930 million in cash. This will be used to pay down debts and repurchase stocks. They are negotiating interests in real estate private equity funds, commercial real estate loans, securities, and commercial real estate.
  2. NRF is pursuing the possibility of recombining itself with NSAM. To spearhead this initiative, they will create a special committee of independent directors advised by UBS.
  3. After the spinoff and reverse stock split, dividend has been set on $0.40. With this change, its annualized dividend yield is now a more realistic 13%. In our list of dividend yields, NRF has passed the baton of highest yield among REITs to CorEnergy Infrastructure Trust.

If you are a recent NRF shareholder, congratulations, you have just made some bucks by tapping into a deeply discounted REIT stock. Now, if you have been a long-term NRF shareholder, I’d be cautious to celebrate. Here are the reasons why.

  1. The share price is still 50% lower than its late October price (after spinoff).
  1. Activist Lands & Buildings have not added NRF shares to its portfolio, only NSAM and NRE. According to Lands & Buildings 31 Dec 2015 Form 13F, their position for both NSAM and NRE doesn’t even reach $10 million, which is smaller than their average individual portfolio position. If the size of this position reflects potential share price appreciation, risk to make the interference work in their favor and effort, not buying NRF and only allocating a small position to NSAM and NRE is not a good sign. Since it is likely that they haven’t profited from it yet, they will keep pushing for changes as a result. They just released another letter this Monday, addressing NSAM’s lead independent director.
  1. NSAM will not let NRF go. I truly believe that a standalone NRF would be the best for NRF shareholders. Although Land & Buildings suggested that NSAM sold NRF management contract and distributed a special dividend from the sale proceeds, this seems to be only a remote possibility. There is an overlap between the boards of NSAM and NRF. Previously, NSAM had hired Goldman to look for strategic alternatives for the company. NRF just hired UBS to pursue a recombination with NSAM. We don’t really need a crystal ball to see that both sides are preparing for a merger.
  1. In an apparent attempt to validate a recombination with NSAM, NRF has created a special committee with independent directors and hired an investment bank to act as a financial advisor. Forming the committee of independent directors doesn’t change the fact that the NRF board is biased toward NSAM’s interests. This seems to be a move to give increased legitimacy to NSAM’s decisions.

Source: NorthStar Realty Finance Corp.(NYSE:NRF), Northstar Realty Europe Corp.(NYSE:NRE), Northstar Asset Management Gro(NYSE:NSAM), Land and Buildings

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.