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Summary

  • There are 12 REITs that currently trade below book value.
  • The median REIT yields 4.8% compared to the SPY’s yield of 1.8%.
  • Three of the top four REITs currently trade below the midpoint of their 52-week low/high.

Since the dot-com bust around 2000 my dad has been acquiring single-family residential investment properties for the purpose of retirement income because, as he puts it, "[He] thought [he] was golden. This retirement thing, [he] did not know what [his] father was so worried about!" Well, he made that statement only a few years ago, regarding, and long after, his retirement investments losing more than half their value during the dot-com bust. To be honest I have not been able to clarify if he panicked and sold or just held such garbage that his holdings went to zero. Either way, I am sure he regrets his lack of diversification by investing nearly all his money in IT stocks. He subsequently decided real estate was the way he was going to invest for retirement.

I have always been interested in real estate. As a little kid I would draw floor plans of what my dream houses would be like. I even had parts of my houses where my grandma and grandpa could live, with no stairs mind you because they might not be able to use them. I guess my perception of time has always been long term. It is this long-term thinking that compels me to invest for tomorrow, today. And lately I am compelled to invest in real estate. I am not interested in the increased investment risk and requirement of my time to invest in single-family residences like my father or owning delinquent tax notes and am thus left with REIT securities.

The first place I generally start when considering new investments is with the ever stalwart Dividend Aristocrats like 4 Dividend Aristocrats You Should Consider Buying. Sometimes I find my old friends are not attractive at the moment like 5 Dividend Aristocrats To Avoid Buying Right Now. Today being like a day like any other day I quickly zeroed in on HCP, Inc. (NYSE:HCP), which is the only Dividend Aristocrat that is also a REIT. I was not immediately convinced HCP was a no-brainer investment so I set out to take a look at all REIT securities (non-ETF) currently available.

This article identifies the four REITs that most often appeared among the top 20% of all REITs when looking individually at:

  1. percent above 52-week midpoint;
  2. price to earnings;
  3. price to book;
  4. price to sales;
  5. price to cash;
  6. dividend yield;
  7. earnings payout ratio;
  8. institutional ownership;
  9. return on assets;
  10. return on equity;
  11. return on investment; and
  12. debt to equity.

METHODOLOGY

Finviz was used to obtain the list of companies classified as a REIT along with all metric and trading data. For each metric listed above, the companies were sorted by their respective metric value from least to greatest when a lower value is generally desired (e.g., price to book) and from greatest to least when a higher value is generally desired (e.g., dividend yield). Each company was assigned an initial point value of zero. A point was then assigned to each of the top 20% of companies for each metric and a point was subtracted from each company in the bottom 20% for each metric. This means a maximum of 12 points and a minimum of -12 points was possible. The distribution of cumulative points for all twelve metrics can be seen below in Chart 1 and a complete list of the REIT companies analyzed is available in Table 1.

I will only discuss the results of five of the twelve metrics in this article for brevity's sake before concluding with a list of the most consistently top ranked REITs according to their cumulative point totals from the twelve metrics listed above.

Chart 1. Cumulative Point Distribution

Table 1. The REIT Companies Analyzed

Symbol

Company

Industry

(NYSE:AAT)

American Assets Trust, Inc.

Retail

(NYSE:ABR)

Arbor Realty Trust Inc.

Diversified

(NYSE:ACC)

American Campus Communities, Inc.

Residential

(NYSE:ACRE)

Ares Commercial Real Estate Corporation

Diversified

(NYSE:AEC)

Associated Estates Realty Corporation

Residential

(NYSE:ALX)

Alexander's Inc.

Retail

(NYSE:AMT)

American Tower Corporation

Diversified

(NYSE:ANH)

Anworth Mortgage Asset Corporation

Diversified

(NYSE:ARE)

Alexandria Real Estate Equities, Inc.

Office

(NYSE:ARI)

Apollo Commercial Real Estate Finance, Inc.

Diversified

(NYSE:AVB)

Avalonbay Communities Inc.

Residential

(NYSE:AVIV)

Aviv REIT, Inc.

Healthcare

(NYSE:BDN)

Brandywine Realty Trust

Diversified

(NYSE:BFS)

Saul Centers Inc.

Retail

(NYSE:BXMT)

Blackstone Mortgage Trust, Inc.

Diversified

(NYSE:CBL)

CBL & Associates Properties Inc.

Retail

(NYSE:CHSP)

Chesapeake Lodging Trust

Hotel

(NYSE:CLDT)

Chatham Lodging Trust

Hotel

(NYSE:CLNY)

Colony Financial, Inc.

Diversified

(NASDAQ:CMCT)

CIM Commercial Trust Corporation

Industrial

(NYSE:CMO)

Capstead Mortgage Corp.

Diversified

(NYSE:COR)

CoreSite Realty Corporation

Office

(NYSE:CPT)

Camden Property Trust

Residential

(NYSE:CSG)

Chambers Street Properties

Office

(NYSE:CUZ)

Cousins Properties Incorporated

Diversified

(NYSE:CXP)

Columbia Property Trust, Inc.

Office

(NYSE:CXW)

Corrections Corporation of America

Diversified

(NYSE:DEI)

Douglas Emmett Inc

Diversified

(NYSE:DX)

Dynex Capital Inc.

Residential

(NYSE:ELS)

Equity LifeStyle Properties, Inc.

Residential

(NYSE:EPR)

EPR Properties

Retail

(NYSE:EQR)

Equity Residential

Residential

(NYSE:EQY)

Equity One Inc.

Retail

(NYSE:ESS)

Essex Property Trust Inc.

Residential

(NYSE:EXR)

Extra Space Storage Inc.

Industrial

(NYSE:FR)

First Industrial Realty Trust Inc.

Industrial

(NYSE:FRT)

Federal Realty Investment Trust

Retail

(NYSEMKT:FSP)

Franklin Street Properties Corp.

Office

(NYSE:GEO)

The GEO Group, Inc.

Healthcare

(NYSE:GGP)

General Growth Properties, Inc

Retail

(NYSE:GOV)

Government Properties Income Trust

Office

(NYSE:GTY)

Getty Realty Corp.

Retail

(NYSE:HCN)

Health Care REIT, Inc.

Healthcare

HCP

HCP, Inc.

Healthcare

(NYSE:HME)

Home Properties Inc.

Residential

(NYSE:HPT)

Hospitality Properties Trust

Retail

(NYSE:HT)

Hersha Hospitality Trust

Hotel

(NYSE:HTA)

Healthcare Trust of America, Inc.

Healthcare

(NYSE:IRC)

Inland Real Estate Corp.

Retail

(NYSEMKT:IRT)

Independence Realty Trust, Inc.

Residential

(NYSE:KIM)

Kimco Realty Corporation

Retail

(NYSE:LTC)

LTC Properties Inc.

Healthcare

(NYSE:MAA)

Mid-America Apartment Communities Inc.

Residential

(NYSE:MAC)

The Macerich Company

Retail

(NYSE:MFA)

MFA Financial, Inc.

Diversified

(NYSE:MNR)

Monmouth Real Estate Investment Corp.

Industrial

(NYSE:MPW)

Medical Properties Trust Inc.

Healthcare

(NYSE:NCT)

Newcastle Investment Corp.

Diversified

(NYSE:NHI)

National Health Investors Inc.

Healthcare

(NYSE:NLY)

Annaly Capital Management, Inc.

Diversified

(NYSE:NNN)

National Retail Properties, Inc.

Diversified

(NYSE:NRZ)

New Residential Investment Corp.

Residential

(NASDAQ:NYMT)

New York Mortgage Trust Inc.

Residential

(NYSE:O)

Realty Income Corporation

Retail

(NYSE:OHI)

Omega Healthcare Investors Inc.

Healthcare

(NYSE:OLP)

One Liberty Properties Inc.

Diversified

(NYSEMKT:ORM)

Owens Realty Mortgage, Inc.

Office

(NYSE:PDM)

Piedmont Office Realty Trust Inc.

Office

(NYSE:PLD)

Prologis, Inc.

Industrial

(NYSE:PSA)

Public Storage

Industrial

(NYSE:PSB)

PS Business Parks Inc.

Diversified

(NYSE:QTS)

QTS Realty Trust, Inc.

Industrial

(NYSE:RESI)

Altisource Residential Corporation

Residential

(NYSE:RLJ)

RLJ Lodging Trust

Hotel

(NASDAQ:ROIC)

Retail Opportunity Investments Corp.

Retail

(NYSE:RSO)

Resource Capital Corp.

Residential

(NYSE:RWT)

Redwood Trust, Inc.

Diversified

(NASDAQ:SBRA)

Sabra Health Care REIT, Inc.

Healthcare

(NYSE:SHO)

Sunstone Hotel Investors Inc.

Hotel

(NYSE:SIR)

Select Income REIT Common Share

Office

(NYSE:SNH)

Senior Housing Properties Trust

Healthcare

(NYSE:SPG)

Simon Property Group Inc.

Retail

(NYSE:SSS)

Sovran Self Storage Inc.

Industrial

(NYSE:STWD)

Starwood Property Trust, Inc.

Diversified

(NYSE:TRNO)

Terreno Realty Corp.

Industrial

(NYSE:TWO)

Two Harbors Investment Corp.

Residential

(NYSE:UBA)

Urstadt Biddle Properties Inc.

Retail

(NYSE:UDR)

UDR, Inc.

Residential

(NYSE:UHT)

Universal Health Realty Income Trust

Healthcare

(NYSE:VNO)

Vornado Realty Trust

Diversified

(NYSE:VTR)

Ventas, Inc.

Healthcare

(NYSE:WPC)

W. P. Carey Inc.

Diversified

(NYSE:WRI)

Weingarten Realty Investors

Retail

(NYSE:WSR)

Whitestone REIT

Diversified

(NYSE:ZFC)

ZAIS Financial Corp.

Diversified

METRIC 1. PERCENT ABOVE 52-WEEK MIDPOINT

Percent above 52-week midpoint values were sorted from least to greatest. The median percent above 52-week midpoint of all companies was approximately 4.6%, while the median percent above 52-week midpoint of the top companies was approximately -4.8%. This implies the companies in Chart 2 have up to approximately 10% upside potential should they converge to the overall median. Fortunately for bargain hunters like myself, there are many REITs that currently trade below the midpoint of their 52-week low/high and two of these companies happen to also be among the four cumulatively top tanked REITs highlighted at the end of this article.

Chart 2. Percent Above 52-Week Midpoint Summary Per REIT Industry

Chart 3. Top Companies By Percent Above 52-Week Midpoint

* CMCT was removed from Chart 2 and 3 to preserve visual scale as its percent above 52-week midpoint value was -41.2% and is the result of a preferred stock dividend distribution.

METRIC 2. DIVIDEND YIELD

Dividend yield values were sorted from greatest to least. The median dividend yield of all companies was approximately 4.8%, while the median dividend yield of the top companies was approximately 9.8%. This means the companies in Chart 3 yield approximately 5% more than the median company, which would result in an additional $50,000 in dividends over a ten-year period assuming an initial investment of $100,000 and excluding compounding. All four of the top REITs are among the top 20% highest yielding REITs listed in Chart 5.

Chart 4. Dividend Yield Summary Per REIT Industry

Chart 5. Top Companies By Dividend Yield

METRIC 3. PRICE TO BOOK

Price to book values were sorted from least to greatest. The median price to book of all companies was approximately 1.7, while the median price to book value of the top companies was approximately 0.9. This means the companies in Chart 7 are nearly half as expensive by price to book than the median company. Three of the four final top ranked REITs currently trade for nearly, or less than, book value.

Chart 6. Price To Book Summary Per REIT Industry

Chart 7. Top Companies By Price To Book

METRIC 4. RETURN ON INVESTMENT

Return on investment values were sorted from greatest to least. The median return on investment of all companies was approximately 4.1%, while the median return on investment of the top companies was approximately 8.2%. This means the companies in Chart 3 return approximately twice as much as the median company, which over a long period of time, could lead to outsized returns compared to their lower performing peers.

Chart 8. Return On Investment Summary Per REIT Industry

Chart 9. Top Companies By Return On Investment

METRIC 5. DEBT TO EQUITY

Debt to equity values were sorted from least to greatest. The median debt to equity of all companies was approximately 1%, while the median debt to equity of the top companies was approximately 0.3%. This means the companies in Chart 3 use approximately one-third the leverage as the median company.

Chart 10. Debt To Equity Summary Per REIT Industry

* BFS and NYMT were removed from Chart 10 to preserve visual scale and had debt to equity of 8.3 and 17.2, respectively.

Chart 11. Top Companies By Debt To Equity

CONCLUSION

Only 37, or 39%, of the 95 companies managed to survive this analysis with at least one total cumulative point. The distribution of cumulative points for all twelve metrics can be seen in Chart 1 above and Table 2 below.

Table 2. Cumulative Point Distribution

Points

Companies

8

2

7

2

6

6

5

2

4

3

3

3

2

9

1

10

0

14

-1

10

-2

13

-3

7

-4

7

-5

4

-6

1

-7

2

The four REITs that cumulatively outranked their peers are:

Symbol

Company

Industry

Points

NLY

Annaly Capital Management, Inc.

Diversified

8

NRZ

New Residential Investment Corp.

Residential

8

DX

Dynex Capital Inc.

Residential

7

RESI

Altisource Residential Corporation

Residential

7

I plan to investigate an investment in one or several of these REITs after I perform additional due diligence on each company.

Additionally, any investor interested in REIT investments can thank telecommunications company Windstream Holdings, Inc. (NASDAQ:WIN) for their announcement early last week that they were spinning off certain business assets into a publicly traded REIT. This announcement is big news for REIT investors because it sets a precedence and model for other companies to follow suit. Getting creative, one could posit that perhaps Amazon.com Inc. (NASDAQ:AMZN) or Google Inc. (NASDAGOOGL) (NASDAQ:GOOG) could transition their server farms into REITs or companies like AT&T, Inc. (NYSE:T) and Verizon Communications Inc. (NYSE:VZ) could spin off their cell tower networks or underground cable networks into REITs.

Think Windstream's announcement is a one-off and other companies will not follow suit, REITs are doomed when interest rates inevitably rise from historically low current levels or there are better real estate opportunities than the four I identified? Comment below!

Disclosure: The author has no positions in any stocks mentioned, but may initiate a long position in DX, NLY, NRZ, RESI over the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.