Last Week Sees Both Upward and Downward Changes

chart01The last week has been relatively uneventful for equity REITs, though there have been both upward and downward changes. For example, apartment REITs bounced back with an average rise of 2 percent, while similar increases were seen in single family homes and manufactured homes as well. In contrast, timber fell by 2 percent, which is enough to make this one of its worst weeks so far in 2016.

NexPoint Residential Trust was the single most successful equity REIT last week with a 10 percent rise, which is a natural extension of the 28 percent return that it has managed to earn so far in 2016. However, REIT investors should remember to be cautious with the small-cap, multi-family REIT because it shares the same fundamental problems as other REITs of its kind, which range from significant floating debt to high amounts of debt relative to its enterprise value. This doesn’t mean that NexPoint Residential Trust hasn’t been earning good returns, just that REIT investors should be aware of the risks as well as the returns.

chart02Meanwhile, Weyerhaeuser suffered a 6 percent loss. Partially, this is because it is in the middle of a transformation into a pure-play timber REIT, as shown by the recently completed disposition of its cellulose fibers segment. However, not everything is bad for timber REITs, which are expected to close 2016 with 1.2 million starts because of a still strengthening housing market.

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Source: NexPoint Residential Trust, Inc. (NYSE:NXRT), Weyerhaeuser Co. (NYSE:WY)

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 June 10, 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 has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

U.S. REITs: Last Week’s Selloff & Redemption

chart01It is beneficial to be aware of stock selloffs due to the fact that they are able to provide actual data about the market sentiment regarding certain sectors and stocks. When stocks are dumped in times of desperation, this sends forth a loud message about what investors are thinking in relation to forecast. If this practice becomes a pattern, then this indeed aids in the formulation of investment strategies.

There are fundamentals which are geared to be the foundation for long term investing, while market sentiment can indicate the right moment to enter. Take into consideration, for example, the fact that though we’re not in agreement with the long standing market sentiment against lodging REIT stocks, being aware of it helps to keep us from investing at the wrong time.

On Wednesday, yet another minor selloff was witnessed, it gradually experienced redemption by the end of the week. During the previous week, the Dow Jones ended with being up by 0.7 percent, S&P 500 closed up by 1.4 percent, and the MSCI US REIT Index was up by 1.0 percent. By the third week into 2016, the Dow Jones was down by 7.6 percent, S&P 500 was down by 5.3 percent, while the MSCI REIT US Index was down by 4.3 percent.

It comes with surprise that there has been a loss of some momentum for the lodging selloff movement that commenced in 2015. No single stock had been spared with a nearly 40 percent negative average return for this sector since the end of 2014. This time, two lodging REITs were among the top best three performances, which proved to be FelCor Lodging Trust and Sunstone Hotel Investors.

The sectors with the best performance in the year of 2015, which included data centers and self-storage, emanated displays of weakness and were the leading runners in the selloffs during last week. Between Monday and Wednesday, equity REITs dropped to lower than the average because of these two sectors.

Other sectors that tanked last week were timber and office. By Wednesday, office had fallen by 3.4 percent; however, by the end of the week, this sector was well on the rebound. On the other hand, timber fell by 4.7 percent by Wednesday and did not rise back up. After spiking due to the Weyerhaeuser acquisition last November, the timber REIT Plum Creek share price dropped to pre-merger levels.

Additionally, most free standing retail REITs have demonstrated good returns, with the exclusion of Getty Realty, whose tenants are oil related companies.

Skyrocketing by 32 percent on Friday, Rouse Properties proved to be the stock with the best return last week. The Canadian giant Brookfield Asset Management made an unsolicited buyout offer of $17 per share, which certainly does not come off as a surprise due to the fact that Brookfield has already invested in Rouse and owns 33 percent of it.

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

Companies: Companies: FelCor Lodging Trust Incorpora(NYSE:FCH), Sunstone Hotel Investors Inc.(NYSE:SHO), Rouse Properties, Inc.(NYSE:RSE), Plum Creek Timber Co. Inc.(NYSE:PCL), Weyerhaeuser Co.(NYSE:WY), Getty Realty Corp.(NYSE:GTY), Brookfield Asset Management In(NYSE:BAM)

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 22, 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.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

Does Timber REIT Weyerhaeuser Want To Become Too Big To Break?

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This past weekend the market was struck by the announcement that Weyerhaeuser (NYSE:WY) and Plum Creek (NYSE:PCL) are merging. The two entities will become one larger company under the Weyerhaeuser name. Weyerhaeuser shareholders will maintain the majority 65 percent of the share pool. The company will be based out of Seattle, Washington.

Both of these REITs have the largest market capitalization in the timber sector, each owning over six million acres in the United States. They say that scale will end up leading to annual cost savings of US$100 million. Of course this news has led to rumors of potential layoffs. Although Weyerhaeuser already enjoys presence in the Southern US, the acquisition of Plum Creek will certainly strengthen their footprint in the region. Consequently, the company will be in a far better position in the domestic market and housing recovery.

The timber category trailed other REIT sectors in the second quarter, as we have talked about several times in our weekly reports. This is due to the fact that the housing market has not recovered as soon as initially predicted. In addition, the strengthening of the U.S. Dollar has resulted in more expensive US timber abroad and made Canadian lumber far more competitive. Also, Chinese markets have failed to absorb supply, resulting in increased inventory at their ports. Different from the third quarter, results in the second quarter were not good.

The Q2 weak results combined with the selloff in August decreased timber REIT stocks as a whole. Timber stocks were down 14 percent year to date as of last Friday. Weyerhaeuser stock was down 15 percent and Plum Creek stock decreased by 6 percent. CatchMark Timber Trust (NYSE:CTT) was the only flat timber REIT stock this year.

Those factors have certainly put a lot of pressure on the timber industry. As we can tell, it has led to major action. In an environment where timber prices are put to the test, operational synergy is just one of many reasons that a merger of this size makes business sense. In the end, the costs need to decrease, and the performance must increase.

Stay tuned! Our US equity REIT ranking is finally close to release.

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.