Investing in real estate industry would be a good idea since the industry has grown significantly in the past year growing by roughly 50% and is anticipated to grow further. In this article, we have tried to pick three real estate investments that have yield more than 4%, and a considerable upside potential.
Franklin Street Properties
Franklin Street Properties (FSP) is a real statement investment trust based in Wakefield, Massachusetts. The Company's primary operations include, asset management, property leasing, acquisitions and dispositions and development. FSP has a current dividend of 6.3% with an annual dividend of $0.76 per share.
Interestingly, this stock has seen a lot of buying by insiders - on August 19th 2013, the Executive Vice president of the company bought 2,350 shares at $11.87 per share along with the CFO of the company who took 2,000 shares at $11.91 per share. Also, the director of the company bought 10,000 shares at $12.25 on September 13th, 2013. All of these insiders have held on to their positions as of January 12, 2014.
The total insider trading mentioned above is worth $174,208. The stock has significantly declined in the last two months after hitting its high of $13.5 in November 2013. In my opinion, Franklin Street Properties is a bargain buy for the investors at this point and will grow from here on.
However, there is risk involved in this company. The long-term debt of the company has increased substantially over the past year. This increases the gearing of the company and would result in increased interest cost. On the positive side, that long-term has been fully utilized for the capital expenditure and would likely result in increased cash flows. Also, the cash in hand has been increasing by more than 23% in the last two years, which means that the company is keeping a good amount of money in hand and that should take care of the upcoming dividend as well.
Alexandria Real Estate Equity
Alexandria Real Estate (ARE) has a dividend yield of 4.2% and pays an annual dividend of $2.72 per share. In the fourth quarter of 2013, the company closed 57 lease transactions aggregating roughly 1.2 million RSF (Rentable square feet). As a result of these 57 leases, the total RSF have reached 3.5 million.
Moreover, Alexandria also closed several sales including land and parking spaces to Kaiser Foundation Health Plan at 1,600 Owens Street. The deal was done for approximately $55.2 million for the site that Alexandria will charge further to construct a medical building.
In the third quarter of 2013, the fixed assets of Alexandria grew by 24.8% as compared to the second quarter. Also, Alexandria decreased its long-term debt by 11% at the end of the second quarter and 8.3% at the end of the third quarter of 2013, which would allow the company to increase its profit margin as the interest costs goes down.
Macerich (MAC) is a real estate trust based in California. The company pays an annual dividend of $2.48 with a dividend yield of 4.2%. The company reported EPS of $0.86 for the third quarter beating the consensus estimate of $0.83. The revenues also beat the consensus estimate by $29.9 million. Moreover, the income statement of Macerich shows somewhat seasonal effect on it with increased net income in June and December and much lower in March and September.
Also, the company has been working on decreasing its costs both related to revenues and administrative increasing the company's efficiency. The long-term debt of the company has also been decreasing over the last three quarters subsequently decreasing interest expense of the company. This continuing trend would increase the net income in the coming earnings report. The stock currently trade at $58.82.
In my opinion, housing industry will grow further this year as it has in 2013. As a result, real estate has become an attractive sector of the economy. I believe these companies are well positioned to grow in the future due to the strong portfolio of properties and strong financial position. These stocks offer healthy dividends along with the prospect of substantial capital gains over the next two-three years. As the economy continues to recover; the housing sector will play a vital role in bringing the economy back to its feet. As a result, real estate investment trusts will benefit a lot from this recovery in the economy.