Investors Have Taken Notice of This Net Lease REIT

chart01Although equity REITs did not fare so well in April, May seems to be a different story so far. Equity REITs managed a median return of 4.1 percent last week, with all sectors managing a positive return while 159 out of 170 REITs managed the same. Something that is particularly interesting because the performance of the S&P500 was flat across the same period of time.

As a result, it is no coincidence that more and more investors are taking note of equity REITs, with particular attention being focused on Agree Realty last week, which has made a comeback that delivered rich rewards for those that placed their trust in it. In short, Agree Realty is a net lease retail small cap alternative to ‘O’ and ‘NNN’, with a bad history associated with tenant concentration. Back when Borders declared bankruptcy in 2011, it harmed the REIT because Borders represented 20% of its annualized base rent. Since then, Agree Realty has worked on reducing its tenant concentration, though it is interesting to note that it has a pharmacy tenant concentration, as shown by the example of Walgreens, which still makes up 17 percent of its ABR.

Regardless, Agree Realty has managed to be one of the highest-performing net lease REITs with a 27 percent return in 2016, beaten out by Seritage Growth, which is a relatively new REIT that is still in its infancy. In general, net lease REITs have enjoyed impressive returns in spite of the fact that its sector experienced moderate growth, which was much more moderate than that of data centers, for example.

With that said, Agree Realty is not the only REIT of interest for curious investors. For example, Summit Hotel Properties managed a 11 percent increase in share price last week, partly because of its strong performance that was made public last week. The company reported a 13 percent increase in dividends and a 21 percent increase in AFFO per share in Q1. Similarly, Ashford Prime enjoyed a 9 percent increase in its share price last week. They reported a 46 percent increase in its AFFO per share in Q1 in spite of its ongoing struggle with one of its biggest shareholders over its future. In contrast, Winthrop Realty Trust lost 18 percent, which is no surprise since it is currently undergoing liquidation.

Source:Summit Hotel Properties, Inc.(NYSE:INN), Agree Realty Corp.(NYSE:ADC),Seritage Growth Properties(NYSE:SRG),Winthrop Realty Trust(NYSE:FUR)

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 May 06, 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 April 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.

Massive cash-out reinforces good momentum of net lease retail REITs

chart01

Download our exclusive REIT report

Oaktree Capital, a major shareholder of Store Capital Corporation (a net lease retail REIT), cashed out Store shares at their highest price since it became publicly traded in November 2014. Until recently, the shares had not suffered significant appreciation, but they are now about a third higher than their initial price.

Oaktree put up for sale more than 33 million shares, almost a quarter of Store’s outstanding shares. However, Store is not pocketing any of the proceeds–all are going to the selling shareholder Oaktree. One main concern was a significant drop in the share price, but it didn’t happen. Prices held up well, demonstrating that interest in this kind of REIT has attracted investors’ interest.

During a period of greater volatility in the first weeks of 2016, we observed that many investors flocked to net lease retail REITs. Companies such as Realty Income and National Retail Properties have appreciated by more than 15% this year, compressing yields to the lower four percent. Store, a net lease retail REIT, has accompanied that trend, as well.

Last December, Oaktree gave signs that Store could fly more freely when their ownership was below 50%. The company ceased to have “controlled status” and was obliged to comply with tighter requirements related to independent directors.

Oaktree is a global investment management firm, specializing in alternative investments with approximately $97 billion in assets under management as of December 31, 2015.

Seritage also benefits from the good momentum.

chart02

Perhaps the good momentum of net lease retail has positively affected Seritage Growth Properties. The company, which is a spinoff of select stores of Sears Holdings, has caught investors’ attention for its shareholders. Many like the company because Warren Buffett and Bruce Berkowitz have invested in it; the rationale is that they must have access to information other people don’t so it’s a good buy, even though the company is concentrated on a failing tenant and its yield is a meager 2.0%.

Despite finding it a risky strategy, I’ve read a lot of theories why one should invest in Seritage. The most common idea is that there should be upside once the properties are leased to other tenants. Some investors have indicated that by looking at the property level the company is undervalued. The conversion to other tenants should take time and capital so I’d only invest if I knew the company was deeply discounted. Also, there’s a cap of 50% conversion of the properties, so Sears’ concentration should continue in the long haul.

Source: Seritage Growth Properties(NYSE:SRG), STORE Capital Corporation(NYSE:STOR)

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.