Will STAG Industrial Lose Steam Again?

chart01Excitement and disappointment can certainly help explain the ups and downs of STAG Industrial, a small cap industrial REIT. Since reaching its 52-week low on 11 February, STAG Industrial has rallied by 26%, exciting investors again and making them wonder if the company will eventually realize its full net asset value. This is not STAG’s first boom in recent months. Will it lose steam again like it did last December?

Despite releasing solid Q4 results this February, STAG did not demonstrate something significant enough to justify this rally. Core FFO increased by 8% and occupancy advanced by 70 basis points reaching 95.6%. Some good metrics remained, such as total debt to total enterprise value around 40% and AFFO dividend payout below ratio 90%. Rent change and retention percentages decreased, although it held up well throughout 2015.

chart02The truth most definitely hurts – STAG is not in the same class as Terreno Realty or Rexford Industrial. STAG’s AFFO multiple has been averaging 12x, while Terreno has enjoyed a 27x, and Rexford is at 18x. In comparison, STAG is relatively cheap. That being said, I would be completely surprised if STAG ever reaches that high level of AFFO multiple.

What bothers me the most is that many investors tend to paint a stock into something that it is not. As a matter of fact, whenever STAG is mentioned, the very first thing that I think about is the word “risk.”

Although it may sound good when the company states that they invest in unexplored secondary and tertiary markets, they simply are not as robust as the primary markets. Also, some investors argue that STAG has a diversified portfolio; however, their properties are still contained within those same secondary and tertiary markets. They are certainly riskier, and do not have the same level of liquidity.

chart03As a potential investor, you need to ask yourself why STAG mostly invests in one hundred percent occupied assets. The management knows that their investment strategy is risky. Their attempt to reduce that risk is to invest in one hundred percent vetted properties, especially single-tenant properties (that can be either 0% or 100% occupied). STAG is paying the extra money to invest in fully occupied units as a measure to ensure the attractiveness of the properties. In addition, this investment strategy explains why the company does not develop properties from scratch.

From my point of view, STAG’s investment strategy is 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 properties in underdeveloped 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 that they need to take additional precautions, which have certainly been visible in their strategy.

Although the company has a good dividend yield, they don’t have enough history of similar or increasing dividends to rate it as a consistent dividend stock (for us, at least five-year history). After periods of boom and bust and a slowdown in the company’s growth, I placed it as speculative.

Source: STAG Industrial, Inc.(NYSE:STAG), Terreno Realty Corp.(NYSE:TRNO), Rexford Industrial Realty, Inc(NYSE:REXR)

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.

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.

The Truth Must Be Told: Industrial REITs Have Not Been a Breeding Ground to Harvest Hefty Dividends

chart01Last November, we asked ourselves why First Industrial had not been generous enough with its shareholders. Although the dividend has grown at a double digit every year since it was reinstated in 2013, the dividend yield was way below its peers; in fact, it is one of the lowest among equity REITs. For the fourth quarter, the company decided to correct this situation and its dividend has gone up by almost 50%.

The company’s quarterly dividend rate went up from $0.13 to 0.19, equalizing an annualized yield of 3.7% with the sector median. Its previous yield was on par with the 10-year U.S. Treasury yield, likely the most obvious reason why management decided to bump it up. Also, the AFFO payout was below 60%, which made room for aggressive increases.

chart02.png The truth must be told: Industrial REITs have not been a breeding ground to harvest hefty dividends. Except for STAG Industrial, Liberty Property Trust, and Monmouth Real Estate Investment Corporation, all others have yielded below the equity REIT average. STAG Industrial has been the most popular for investing in secondary and tertiary markets. First Industrial, in turn, invests in the top industrial real estate markets in the U.S.

First Industrial went through tough times during the great recession, turning itself very stringent about dividend distributions. Its share price reached the bottom at $1.91 on March 03, 2009, after reaching its all-time peak of $50.52 in November 2006. On March 31, 2009, its total debt to total market capitalization reached 84%. Its FFO per share plummeted in 2008 and went negative in 2010. For that reason, liquidity has become an important component of its strategy. In 2009, they announced that they would distribute the minimum amount of dividends required to maintain the REIT status.

chart03.png Fast forward to December 31, 2015, and the situation had completely changed. Its share price had surpassed $20. Its total debt to total market capitalization had plummeted to 36% and last September the company was granted investment grade status by Standard & Poor’s. That recognition must have also encouraged the company’s decision to make the dividend policy less stringent.

Last year, First Industrial stock performed well. Its total return was just under 10%, which was better than most of its peers. Only PS Business Parks and Terreno did better than First. Since management expects its FFO per share will increase by 15% in 2016, there’s a good chance that the company can continue its stock performance in 2016. In terms of AFFO multiple, the company is comparatively cheap. While the peer average is 18x, First has been trading at 16x. It is not as blatantly cheap as STAG (which is trading at 11x), but there’s certainly room for appreciation.

The only caveat is that First shares tend to be as volatile as the market. In 2016, we’ve seen a significant drop of 5%, a bit more than S&P500’s drop of 7%. Given that the Q4 results last Friday were strong, this could be a good entry point.

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Source: First Industrial Realty Trust(NYSE:FR), Fast Graphs

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.

Attention, Loyalists, STAG Dropped Another 9% 

 

chart01.pngI’ve always struggled covering popular stocks because oftentimes investors form opinions based on emotions rather than facts. I’m not very keen on unanimity because it creates an aura around a company and management that makes people disregard weaknesses. For sure, it’s good for the company, but this benefit doesn’t necessarily translate to the investor.

Take STAG Industrial for instance. The company has demonstrated numerous flaws in its investment strategy and the way it handles its funding. But no matter what, there has been a legion of investors loyal to the company. The management used to tell investors they wanted to grow their assets aggressively, annually, and the ‘masses’ loved it. The management only skipped the part that a significant portion of growth would come on the shareholders’ expenses. Go figure!

STAG’s share price has now trended downwards. Even a Wall Street analyst downgraded the stock last year; I believe it takes a lot of guts for an analyst to downgrade a stock when everyone else is not. The price accumulated a 17% drop this year and 38% since December 31, 2014. It is now very cheap relative to its peers. Whenever the share price drops, people hopeful of a rebound buy more. By the way, loyalists, just a heads-up–the STAG share price dropped another 9% last week.

The same aura has been created around big ‘O’, the monthly dividend company. The company released its results last Wednesday and shares spiked by 8.2% last week. National Retail Properties (NNN), its closest peer, also released strong results on the following day and the market reaction was ‘nada’. In fact, I have already written articles showing that NNN’s performance is as good as big ‘O’. Also, in the same category of net leases, I have highlighted Agree Realty Corp as an opportunity.

The secret of the big ‘O’ is its track record and consistency. Every month when it distributes the same or increased dividends, it is holding itself accountable to its shareholders. That is, it sends the following message: ‘We have generated growing cash and here it is’. And since it’s been doing so for years and has increased the dividend for 73 quarters in a row, the stock seems to be immune to these volatile times. It has a beta of 0.12, as opposed to NNN’s 0.36.

The other side of the coin is that people quickly forget that the stock seems overpriced relative to its peers, edging an AFFO multiple of 22x. Also, dividend yield of 3.9% is below peer average. It is at the same magnitude of Public Storage, which reached 27x, but it has moved way above the entry point.

Maybe that’s something STAG could learn from O. Focus on track record and consistency, and the market will reward you. This way, STAG could detach from the market’s volatility (STAG’s beta of 1.05).

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

Source: Public Storage(NYSE:PSA), Realty Income Corporation(NYSE:O), National Retail Properties, In(NYSE:NNN), STAG Industrial, Inc.(NYSE:STAG)

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 12, 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.

Simon Spoiled Taubman’s Mall Project

Last Friday, some investors in the financial markets were disappointed at the Q4-2015 results of Simon Property Group, a huge regional mall REIT ($58 billion market cap), but in the world of brick and mortar, that may not be the case. Simon looks to have beaten Taubman Centers’ ($4 billion market cap regional mall REIT) plan to open an enclosed shopping mall in downtown Miami. Taubman is instead settling for a high end retail street.

chart03.pngAlong with Miami Worldcenter Associates and Forbes Company, Taubman intended to construct a 765,000 square foot mall which was fully enclosed. While retail, dining and entertainment were to be key, over 40% of the mall was set to be dedicated to Bloomingdale’s and Macy’s. Included in the plan was a pedestrian-only street which featured multiple restaurants and shops on 7th street, which led directly to the American Airlines Arena. A press release on Jan 11 stated that the mall project had been discarded, and in its place would be a high end retail street, positioned south to north between 7th and 10th streets.

chart04.pngSimon planned to construct an open-air shopping center simultaneously in downtown Miami. The luxury mall is to be 500,000 square feet, and complete with high-end retailers along with plenty of dining and entertainment facilities in the Brickell neighborhood. Part of the project has already been finished and is to open this year. Local developers have been developing the project with Simon. Both projects are mixed-use and also include offices, hotels and residences.

chart05.pngTaubman’s decision strikes many as yet another signal that the idea of a mall no longer works in America. Cities have become increasingly urbanized and, along with the growth of online shopping and the boost to high street shopping, malls have become marginalized. But while Taubman is looking to expand overseas, and in particular to Asia, it’s unlikely that they will scrap future mall projects in the U.S. This scenario appears to be just a downtown Miami battle between two competitors.

chart02Due to recent selloffs, some regional malls REIT stocks have returned poorly, whereas others have been holding better. Simon has been the latter. Following the release of its results on Friday, Simon stocks dropped, but they quickly rebounded. Simon’s Q4-15 funds from operations have fallen in comparison with Q4-14. Also, occupancy dropped by 100 basis points. Despite this result, vacancy levels for malls in general have trended downwards.

The regional malls REITS that have higher sales per square foot have been doing better. Macerich, Taubman, Simon and General Growth average an AFFO multiple of 24x. In contrast, Rouse Properties, Pennsylvania Real Estate, WP Glimcher and CBL & Associates are languishing badly with an AFFO multiple of just 11x.

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As a result of the project change, Taubman’s share price fell for days after the announcement was made. Taubman trades at 27x yield at 3.2%, which is the highest AFFO multiple among its peers.

chart06Source: Taubman Centers, Inc.(NYSE:TCO), Simon Property Group Inc.(NYSE:SPG), General Growth Properties, Inc(NYSE:GGP), WP GLIMCHER Inc.(NYSE:WPG), Pennsylvania Real Estate Inves(NYSE:PEI),The Macerich Company(NYSE:MAC), CBL & Associates Properties In(NYSE:CBL), Rouse Properties, Inc.(NYSE:RSE), Yahoo!Finance, Fast Graphs, Brickell City Centre, Miami Worldcenter, Reis

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 will DuPont be leaving the bullpen?

sample.pngOver the past week, in anticipation of its Q4 results which are to be released this coming Thursday on February 4th, the rally for DuPont Fabros has been over 9 percent.

For a great part of 2015, DuPont was in the bullpen. CEO Christopher Eldredge was the one put in charge to contain losses after a top tenant declared bankruptcy. It is good news that the succeeding tenant seems to be doing quite a lot better and kept some of the storage space. Due to the issue, it is expected that the 2015 AFFO per share will go up by 6 percent in a sector in which competitors have increased by two digits.

Since the arrival of the new year, new forecasts have been put forth, and DuPont is expecting to experience a better year in 2016. Especially in the first years of his leadership, Eldredge does not wish to be left behind by its peers. Since the company might soon overcome last year’s issues, this could be the year that the company really thrives as things currently are looking rather favorable.

In comparison to its peers, DuPont has a great entry point, which is based on a 12x AFFO multiple along with a decent dividend of 5.7 percent. The dividend payout is set under 70 percent. Though it does not possess an investment grade rating as that of Digital Realty, the company’s ratio for debt to total capitalization is suitably under control.

Because of the fact of tenant concentrations, a risk premium should be added to the company’s valuation. The reason is that there is always the possibility of a corporate decision that will change the storage host or make a downgrade, even if they are not running out of money. More than half of the annual based rent is represented by Microsoft, Facebook, Rackspace, and Yahoo!.

The truth of the matter is that tenant concentration is a delicate issue, but I would not be surprised to see DuPont leave the bullpen sooner than most companies with the same issue.

What happened to make STAG Chief Financial Officer leave?

On Tuesday, STAG Industrial informed that CFO Geoffrey Jarvis left the company. I wonder if the unexpected exit has to do with the company’s challenging period. Because its share price dropped in 2015, the company has been unable to offer major issuance of equity. The management expects to grow assets by 25 percent annually. In 2016, the stock is currently down by 8.2 percent.

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

Source: Digital Realty Trust Inc.(NYSE:DLR), DuPont Fabros Technology, Inc.(NYSE:DFT), STAG Industrial, Inc.(NYSE:STAG), Fast Graphs, Yahoo!Finance.

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 January 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 December 31, 2015, 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.

The REITs That May Be Your Key To Apartments

chart01Smaller companies might be your best chance at making it in the apartment sector. In 2015, since fundamentals have held up, Apartments was one of the best performing sectors in the REIT industry, and there are high chances that this moment will still prevail this year. The only issue at hand is the fact that most AFFO multiples have surpassed 20x apart from the smaller REITs. It goes without saying that there are uncertainties when you invest in companies on the low side of the small cap spectrum.

The companies that are part of this ‘club’ include BlueRock Residential Growth, NexPoint Residential, Independence Trust and Preferred Apartment Communities. They are still rookies in the publicly traded arena and their market capitalization is in the range of $200-300 million. Not only is their leverage on the higher side, they also have the highest dividend yields and the lowest AFFO multiples.

These are the profiles of two companies:

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NexPoint Residential had spun off from NexPoint Credit Strategies Fund before the REIT began trading first half of 2015. The company targets the middle income residents in the US Southeastern and Southwestern. The insider ownership of the company is high at 16% despite the fact that it is externally managed by an affiliate of Highland Capital Management. They believe their NAV is between $15-20 and have traded around $13.

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Independent Trust has recently acquired Trade Street with its shareholders holding 68%. When we looked at the two companies separately right before the merger, Trade Street was one of the fastest growing FFO per share and Independence Trust was one of the slowest. The performance of the combined company is yet to be seen. Trade Street leadership joined the board and the Independent Trust management team has been maintained. The new company has a portfolio $ 1.4 billion, mainly financed through debt, 73%, the highest among these four companies.

Source: NexPoint Residential Trust (NYSE:NXRT), Independence Realty Trust (AMEX:IRT), Bluerock Residential Growth (AMEX:BRG), Preferred Apartment Communities (NYSE:APTS), Fast Graphs

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.