Investing In Residential Real Estate Properties vs. REITs (Part 2/2)

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Click here if you haven’t read Part 1

Purchasing REIT stocks is a much less hands-on approach to real estate investment. Once the investor has decided which REIT stocks to buy, all that is required is to track the stock value, get paid regular dividends and decide when to sell. There is no financial responsibility once the initial purchase has been completed, unless the investor decides to buy additional shares. Liquidation is easy: You just pick up the phone or enter the necessary information on your PC, tablet or smartphone.

Among residential REITs, our due diligence has spotted certain highly-ranked stocks with regard to dividend-generation potential. Essex Property Trust (NYSE:ESS), which invests in apartment communities on the West Coast, has greatly exceeded our expectations. It has no sole leading indicator that outperforms its peers; however, all distributing-boost components stand out as above average. The downside is its heavy price-to-FFO — around 24× vs. the sector median of 19×.

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Note: As of 23 October of 2015

Mid-America Apartments (NYSE:MAA), currently trading at 16×, is a cheaper choice, with a dividend-generation potential somewhat above the sector median — not little for one of the best-performing REIT space sectors at the moment. Additionally, dividend yield is at par with peers’, unlike Essex’s, which has the lowest. Also unlike Essex, Mid-America invests in Southeastern and Southwestern markets — about ⅔ in large markets, the rest in secondary ones.

Mid-America released strong Q3 results on October 28. The highlight has been its 2015 FFO guidance, which, compared with 2014 FFO, increased from 7 to 9 percent.

NexPoint Residential Trust (NYSE:NXRT) and Post Properties (NYSE:PPS) are also highly-ranked and will be subject to analysis in coming posts.

Source: Fast Graphs, Essex Property Trust, Mid-America Apartments

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 (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…

Investing In Residential Real Estate Properties vs. REITs (Part 1/2)

real-estate-475875_1920Many people earn great returns on their investments by putting their money into residential real estate purchases. These types of properties include singe family homes, multi-family homes, individual condominiums, and townhouses. Although some investors purchase and then quickly sell the residential properties for profit, otherwise known as flipping, for the purpose of this article we will concentrate on holding the assets for long-term rental purposes.

We will also compare purchasing individual residential properties to investing in Real Estate Investment Trusts or REITs. Both options provide investors with an excellent opportunity to earn great returns on their money. However, they are quite the opposite of each other regarding the overall investment strategy.

Residential Real Estate Properties

Purchasing individual residential properties may very well be the best option for investors that are hands-on and enjoy having far greater control over the situation. That being said, investors certainly need to be aware of the various aspects involved before considering this type of commitment. It can take a considerable amount of effort and time in order to locate the correct single-family property.

If purchasing more than one property, investors need to multiply that effort and time by a significant amount. Some might not agree, but a good rule of thumb to go by is that two properties require three times the amount of work. Another hugely important factor is financing. Most people are not able to pay for the purchases in cash, and rely on obtaining mortgages. Regarding mortgages, some aspects to keep in mind are the down payments, monthly principal and interest payments.

Other factors to consider are the property taxes and insurance, maintenance fees, and management. If an investor decides to manage the property, s/he needs to be prepared to answer phone calls in the middle of the night from unhappy tenants. On the other hand, hiring property managers will add on yet another expense. The expenses need to be paid even if the properties are empty or the tenants are not paying their rent. Residential properties are often hard to sell, so it may take time to liquidate the assets. Investors are able to borrow against the asset, and build equity over time.

To be continued…

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.