Yellow Flag on Hotel REITs

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During the release of Q2 results last week, several lodging stocks relayed the weakening of corporate transient demand. This has led some management teams to be more cautious while several have decided to review their 2016 guidance figures. Hotel REITs are not saying how long this will take, but they have confirmed that the second half of the year will suffer from the lingering effect.

The main cause has been the macro environment. Many uncertainties have led many companies, regardless of their size, to spend less and also cut travel expenses. Plus, the geopolitical tensions and fears of terrorism have discouraged travelers. With domestic and global events such as Brexit, China economy, oil prices, and U.S. elections, companies are lacking a clear horizon.

Hilton Worldwide, which is planning to spin off to create ‘Park Hotels & Resorts REIT,’ has mentioned on their Q2 call that, because of corporate transient, they remain on the lower end of their guidance range. While the corporate transient segment is slowing down, the group business is still doing well.

FelCor Lodging Trust, which is significantly exposed to the business traveler customer base, has also reported they are expecting group business to remain solid. While the group business partially offsets the decline in business transient performance, they are still continuing to expect negative effects on hotel metrics.

The Dow Jones U.S. Hotel & Lodging index has dropped by 4% by Wednesday, in tandem with most hotel REITs, but it has quickly recovered. Regarding last week’s worst performers, FelCor went down by 8%, Pebblebrook fell by 5%, and Hersha dropped by 3%.

Although the softness was detected a couple of months ago, a stronger impact has recently thrown down a yellow flag on hotels, whose operational results have been doing well. While on the other hand, the softening has made a low to moderate impact on the results. Many management teams have reported that there are ways to mitigate the impact.

In conclusion, the softening is not all bad, but it still will require some monitoring.

Source: Dow Jones U.S. Hotel & Lodging (^DJUSHL), Hilton Worldwide Holdings Inc.(NYSE:HLT), FelCor Lodging Trust Incorporated (NYSE:FCH), Pebblebrook Hotel Trust(NYSE:PEB), Hersha Hospitality Trust(NYSE:HT)

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 July 29, 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 May 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 is long FCH, XHR, CLDT, PEB.

What’s Attractive About This Hotel REIT?

chart01.pngREIT investors should turn their attention to investing in hotel stocks. Hotels offer the best buy opportunities for investors who are searching for undervalued REITs. Most hotels are now trading between eight and twelve times the projected 2016 AFFO (in some cases, down from last year’s 20 times). It is now time for investors to commit themselves to finding a true gem.

The Pebblebrook Hotel Trust is one investing opportunity that one should not ignore. Pebblebrook Hotel had one of the best hotel metrics in the industry last year. Unfortunately, their shares dropped in value at the same time. They dropped from a peak of $50 in February 2015. At this time, they are now trading close to $28 a share at a multiple shy of ten times projected 2016 AFFO.

Pebblebrook Hotel’s multiple lies within the hotel’s sector average, and the sector presently does not have strong catalysts. Consequently, it is difficult to tell if the entire sector of REITs will improve in the short, mid-term. However, it is imperative to point out that Pebblebrook has demonstrated to be a worthwhile investment.

What’s Attractive About Pebblebrook?

-Jon Bortz is the founder, CEO, and Chairman. Bortz is a restless industry leader who has years of experience with REITs. Bortz led another hotel REIT (LaSalle Hotel Properties) from its IPO in 1998 until 2009. After he left LaSalle, he founded Pebblebrook and worked hard at turning it into a midcap REIT of two billion. Pebblebrook and LaSalle are not very different in market capitalization.

-The portfolio is exposed to bright locations in terms of industry projections. Their exposure to the West Coast (62% of the hotel EBITDA) is larger than the East Coast (35%). Pebblebrook has strong presence in San Diego, San Francisco, and Los Angeles. Please keep in mind that Pebblebrook is exposed to supply inflicted locations such as New York City, but its stake is limited.

-The management’s ability to secure exceptional same store growth rates. Last year, they demonstrated one of the highest same-property EBITDA growth opportunities of any public lodging REIT. This year, it has been reported that in Q1, they were able to increase same-property EBITDA by 15%.

-Pebblebrook has big plans for this year and 2017. The company is expected to renovate and reposition several of its properties. This should help improve their performance in the near future.

Source: Pebblebrook Hotel Trust (NYSE: PEB)

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 is long FHC.

Data Center REITs Gained Attention Again

chart01This week U.S. equity REIT stocks have been slightly up, with a 0.8% average increase. The S&P500 also saw a similar trend. This time we noticed that the market was holding stronger opinions towards sectors. Generally, the more popular sectors suffered losses while underappreciated sectors experienced gains.

Data center gained attention because all data center REITs lost ground, with a median share price decline of -3.2%. Most stocks dropped between 2% and 4%, but that was not the case for CoreSite Realty.

CoreSite share price plummeted by 8.1%, the worst among all U.S. equity REITs last week. The most dramatic drops occurred on Wednesday and Thursday, just two weeks before the company releases their Q2 results. Hopefully their results will be on par.

Despite the drop, CoreSite remains the most successful data center REIT in 2016. They have returned with 48% percent to date. The stock has remained one of the top five best performing stock among U.S. equity REITs. It is also important to mention that CoreSite is a midcap REIT with 17 data centers across the United States. They also have the second highest multiple when compared to peers.

Data center, the best performing REIT sector of 2016 so far, has definitely been the center of several online publications. Fundamentals have been spectacular leading the average multiple to surpass 20 times AFFO. For that particular reason, investors have been very cautious in adding new positions; some have done the opposite and realized profits. Manufactured homes and self-storage were among the other sectors who did poorly last week.

Lodging and timber saw quite a bit of gains. Several lodging stocks were among the weekly top twenty returns. Pebblebrook Hotel Trust and Chatham Lodging Trust returned around 6%-7%. Their portfolios are skewed toward the west coast, where the lodging industry should demonstrate much better results.

We are approaching the start of Q2 results season, so this could very well tell us how things will unfold.

Source: Chatham Lodging Trust(NYSE:CLDT), Pebblebrook Hotel Trust(NYSE:PEB), CoreSite Realty Corporation(NYSE:COR)

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 July 15, 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 May 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 is long FCH.

U.S. Equity REITs Return 7%

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U.S. equity REITs continue to excel and, on average, have returned an average of 7% so far this month. This should not change. This Wednesday, the Federal Reserve laid out a more conservative scenario for interest rate hikes in 2016 (two rather than four rate increases). Although the Fed has been optimistic about the US economy, they will slow the pace of rising interest rates due to concerns over weaker global growth. Because interest rate hikes have been the source of several REIT selloffs in 2015, we expect a smooth field for REITs to run for the coming months.

Highlights of the Week

This has been another consecutive positive week. We continue to see high interest in net lease retail, which continues to be going well. Seritage Growth Properties, a spinoff of Sears stores, have surprised investors and returned by almost 9% last week. Other stocks such as Realty Income and National Realty Properties have seen valuation multiples get higher over the last weeks and now they seem overvalued. Their dividend yield has been below equity REIT average.

UMH Properties, a small cap in the manufactured home industry, fell by more than 6% this Friday. There was no visible reason for such a sharp drop, which occurred after 2 pm. However, we know that, despite their good dividend history, UMH has not covered their dividends and they seem far from covering them. We believe that the company should have cut their dividends to a reasonable level rather than finance it with debt and equity.

Pebblebrook Hotel Trust

Pebblebrook Hotel Trust surprised many investors and increased its dividend by 23%. Last year we elected Pebblebrook as one of the strongest growth lodging REITs. They have grown AFFO per share more than most REITs have and rewarded shareholders with dividends growing at equivalent rates. So for us, it was not really surprising.

This is a chance for Pebblebrook to react. The Fed decision may be what investors were expecting to invest in lodging again. Without much government interference, we could finally see a robust recovery from undervalued lodging REIT stocks. We have always put the company as part of a group of REITs that enjoy ‘premium’ valuation because of strong quarterly results, experienced management, and its good size in terms of market capitalization.

When we last looked at Pebblebrook on October 23, 2015, its AFFO multiple was about 17x. This week, it was hovering around 11x. Although the stock has room for growth, we do not believe that it will achieve the same multiple of October.

The company will slow growth due to weaker financial markets. Their AFFO per share growth for 2016 is expected to be around 10%, as opposed to last year’s 28%. Moreover, they just approved share repurchase plans.

In terms of dividend yield, the dividend increase puts the company above the average among equity REITs.

In short, if you were looking for an undervalued, well-managed, high yield stock, Pebblebrook could be it.

Click here to download exclusive dividend yield report for free.

Source: Pebblebrook Hotel Trust(NYSE:PEB),UMH Properties Inc.(NYSE:UMH),Realty Income Corporation(NYSE:O),National Retail Properties, In(NYSE:NNN), Seritage Growth Properties(NYSE:SRG)

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 18, 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 February 29, 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.

 

Something that we haven’t seen for quite a while

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It’s been a very good week for equity REITs, something that we haven’t seen for quite a while. Virtually all stocks went positive. In fact, a mere 8 out of the 174 we track had a negative performance. On average, stocks saw a 4.2% increase, higher than the S&P500. We had several stocks that closed the week with a two-digit growth.

Last week, in anticipation of the release of the Q4 results, investors discovered some stocks that had been undervalued and went on a buying spree. Last week’s top three performers, Monogram Residential Trust (apartments), Pebblebrook Hotel Trust, and Sabra Health Care REIT, will soon be releasing results this week. Other top performers included lodging and timber REITs, as well as CorEnergy Infrastructure Trust, which had been one of the most volatile among equity REITs.

At the same time Monogram stock spiked by 6% on Friday, Madison International Realty, a global real estate investment company and current stockholder in the company, disclosed their potential interest in the acquisition of assets. I’m not sure how or even if they are related, but this stock has seen a lot of activity over the past week. Monogram stocks increased by 13%, topping the list as our best performing stock of the week. On the surface, their stock seems to be overpriced since AFFO multiple has reached 21x. As for Pebblebrook and Sabra, their stocks seem to be a bit underpriced.

The sectors that exceled last week were lodging, healthcare, and self-storage. The first two have certainly been battered this year, so it is understandable that there would be some type of reaction above the market average. The median return for both was between 6-7%, but they will still enjoy one of the highest dividend yields among REITs.

On the other hand, self-storage seems to be unstoppable, bordering on irrational exuberance. Public Storage released strong results last Tuesday and their stocks soared by 8%. Its AFFO multiple is very close to the 30s. Sovran Self Storage and CubeSmart also released the Q4 results and their guidance for AFFO growth has been strong. These two stocks have AFFO multiples in the 20s. The truth is that self-storage hasn’t been a sector to find yields. Stocks have fared well, but yields have been below the REIT industry average.

CubeSmart’s growth was spectacular in the fourth quarter. Their FFO share increased by 18% year over year and same-store net operating income growth reached 11%. The company will not be able to keep up this growth in 2016, but the guidance for next year’s growth rates is still very good. FFO per share growth should grow by 10% and same store NOI by 8%.

As for Public Storage, the largest in this sector, their Core FFO per share increased by 11% in the fourth quarter year over year. The company also touched upon market supply, which appears to be growing at 2-2.5%, and even more in highly populated states, including Texas and Florida, where we expect a decrease in rental rates at some point. However, the company wasn’t able to say when the sector as a whole would be affected by oversupply.

Check the reports for Dividend Yield by Sector and Weekly Returns.

Source: CubeSmart(NYSE:CUBE), Monogram Residential Trust, In(NYSE:MORE), Public Storage(NYSE:PSA), Sovran Self Storage Inc.(NYSE:SSS), Pebblebrook Hotel Trust(NYSE:PEB), Sabra Health Care REIT, Inc.(NasdaqGS:SBRA), SEC, Fast Graphs

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 February 19, 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.

U.S. REITs – Pebblebrook Prompts New Lodging Selloff (Part 2 of 2)

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Click here if you have not read Part 1.

This is not the first time this year that hotels suffered a major selloff. This August, when the market was still on ‘summer vacation,’ hotel REITs suffered one of the biggest drops in any sector. Share prices for the sector dropped by a median of -8.5 percent. In September, hotel REIT shares also fell by 6 percent. Following a rebound in October, they suffered new losses last Friday.

This new attack has positioned lodging unfairly with timber. From a sector standpoint, lodging REIT stocks has been one of the worst year-to-date returns. The difference is that — not to say the least — timber metrics have been suffering, while the lodging industry environment continues positive.

Compared with the same period last year, third-quarter results have been softer than those for second-quarter; yet good, distribution-boosting components have grown more slowly. Revenues increased by 27 percent in Q3, as opposed to 34 percent in Q2. Same-property-hotel EBITDA, an internal profitability metric, increased 8.6 percent, compared with 10.4 percent in Q2. FFO per share increased 22 percent, compared with 29 percent in Q2. As we mentioned, AFFO-per-share growth projected for 2015 has fallen by few basis points, to 27 percent.

Pebblebrook remains on the high end of the valuation range among lodging REITs, second only to Strategic Hotels & Resorts (NYSE:BEE). As of October 23, it has a price-to-AFFO ratio of 17× and a sector median of 13×. As to dividends, Pebblebrook has increased its dividend rate by 35 percent and dividend yield is around 3.7 percent. The company has, as we have observed, been part of a group of REITs that enjoy ‘premium’ valuation because of strong quarterly results and experienced management; also, its US$2½ billion market capitalization puts it in a good size position. We could see Pebblebrook as a top hotel REIT in the mid- to long term.

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Note: Last table as of 23 October 2015.

Source: Fast Graphs, Pebblebrook Hotels Trust, Yahoo Finance

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 – Pebblebrook Prompts New Lodging Selloff

chart01Pebblebrook Hotels Trust (NYSE:PEB) has ranked among the highest-performing hotel REITs — but not because chairman, president and CEO Jon Bortz served in similar functions at another reputable publicly-traded hotel REIT, LaSalle Hotel Properties (NYSE:LHO), for over a decade. In fact, in Q2 Pebblebrook had a fine metrics performance ensemble associated with dividend generation potential, but upon the release of Q3 results on October 22, the market threw uncertainty upon its performance.

Pebblebrook decreased the higher end of its 2015 guidance for adjusted funds from operations (AFFO) (which has dropped US$0.01, from $2.47-2.51 to $2.47-2.50) and also lowered both ends of its guidance for same-property RevPAR growth rate by 100 basis points. The guidance for the hotel industry has not changed. Above is a sample of their Q3 results.

During Q3, among internal growth metrics, same-property occupancy dropped 1.3 percent to 88.4 percent from Q3 2014, as also did that for the last nine months. On the other hand, same-property RevPAR and ADR increased 4 and 5.3 percent respectively.

chart02Comparing the magnitude of the adjustments — which appeared more like fine-tuning — with a major hotel-price drop (-3.2 percent last week), the market appears to be overreacting. Industry demand has advanced more than supply, internal growth metrics — excluding occupancy — have advanced, and cash flow and profitability have increased.

What caught our attention, however, is the changes in long-term trends that Pebblebrook management indicated. They believe that, owing to a strong dollar and lower growth abroad, international inbound travel will weaken, affecting gateway cities where company hotels are located. The strong dollar also affects US travelers who use weaker currencies as an opportunity to travel abroad — and doubles down the negative effect over the domestic hotel industry.

To be continued…