REIT investors tend to invest in the asset class for one of two reasons, if not both:
- To gain exposure to real estate as a hard asset that is not highly correlated to the general stock market; and
- For the dividend income stream that the REIT model necessitates the trusts pass through to shareholders
By law, REITs must distribute at least 90% of their taxable income in order to eliminate the need to pay income tax at the corporate level. This is an analysis of the value and dividend growth rates of 6 REITs within the mall sector. The companies being analyzed, in alphabetical order, are:
- CBL & Associates Properties Inc. (CBL);
- Glimcher Realty Trust (GRT);
- Macerich Co. (MAC);
- Pennsylvania Real Estate Investment Trust (PEI);
- Simon Property Group Inc. (SPG); and
- Taubman Centers Inc. (TCO)
The Importance and Limitations of Adjusted Funds From Operations in REIT Dividend Growth Estimations
- Current Dividend Yield: 4.6%
- Market Capitalization: $2.7 Billion
- Price to Cash-Flow: 5.8
- Yield Analysis: CPL’s dividends totaled slightly over $2 per share in 2007 and 2008, but suffered a cut to $0.58 in 2009 (an over 70% decrease). CPL’s total dividends in 2010 totaled $0.80 (about a 38% increase from 2009), and the REIT raised its quarterly dividend by a penny in the most recent quarter (a 5% annualized increase). Thus far, CPL’s dividend growth has been significant. If CPL’s payout can return to its 2006-2007 levels, which it eventually should, the dividend would increase by 138%, and the REIT would yield 11% based on the current price per share.
- NOTE: CBL has the lowest price to cash-flow of the six mentioned companies.
- Current Dividend Yield: 4.3%
- Market Capitalization: $912 Million
- Price to Cash-Flow: 11.2
- Yield Analysis: GRT’s dividends totaled $1.9232 per share in both 2006 and 2007. GRT cut the annual dividend to $1.28 in 2008 (a 33% decrease) and subsequently cut the dividend to $0.40 in 2009 (almost a 70% decrease from 2008 and a nearly 80% decrease from 2007). GRT did not raise its dividend at all in 2010, nor did it yet in 2011. Since the fall, GRT has had zero dividend growth rate.
- Current Dividend Yield: 3.95%
- Market Capitalization: $6.5 Billion
- Price to Cash-Flow: 29.8
- Yield Analysis: MAC is a slight yield anomaly in the mall REIT sector (as is TCO, below). MAC’s annual dividends did not decrease from 2007 to 2008, but instead increased from $2.8225 to $3.0826 (a 9.2% increase). Moreover, in 2009, MAC further raised its annual dividend to a startling $3.7656 in 2009 (a 22% annual increase). Subsequently, MAC did lower its annual dividend to $2.70 in 2010 (a 28% decrease).
- NOTE: Given MAC’s high price to cash-flow and 3.7656 high multiple to future AFFO, it appears unlikely that MAC can or should raise its dividend back to or beyond the 2009 level.
- Current Dividend Yield: 3.96%
- Market Capitalization: $841 Million
- Price to Cash-Flow: 7.2
- Yield Analysis: PEI’s annual dividend was stable at $2.28 per share from 2006 through 2008. In 2009, PEI slashed its annual payout to $0.74 (over a 67% decrease). In 2010, PEI cut the annual payout almost another 19% to $0.60 per share. The $0.15 quarterly dividend has not yet been altered in 2011. Nonetheless, PEI appears to have a relatively strong balance sheet, with a below average price to book compared to its sector (a more conservative mall REIT). As a result, it appears that PEI is capable of soon starting to increase its dividends, but is likely waiting for the business to further improve.
- NOTE: PEI has the lowest price to book value of the six mentioned companies
- Current Dividend Yield: 2.77%
- Market Capitalization: $34.2 Billion
- Price to Cash-Flow: 19.1
- Yield Analysis: After growing its annual payout by about 10% per year from 2006 to 2008, in 2009 SPG had to cut its annual payout from the $3.5728 2008 level to $1.5237 in 2009 (an over 57% decrease). Subsequently, the dividend bounced back, sharply, to $2.60 in 2010 (a 70% increase). Based on the current quarterly dividend rate (and assuming no increase this year), the 2011 total payout is $3.20 (a 23% increase from 2010). Assuming SPG institutes dividend growth levels consistent with prior practices, SPG’s payout will likely reach a new high in 2012 or 2013. Nonetheless, at about 19x cash-flow, too significant of a dividend increase is unlikely and also likely unreasonable.
- NOTE: SPG is the largest mall REIT on this list, and an aggressive grower. Further, unlike many of the smaller mall REITS, it has international exposure.
- Current Dividend Yield: 3.09%
- Market Capitalization: $3.2 Billion
- Price to Cash-Flow: 11.6
- Yield Analysis: TCO is the only company on this list that did not have a lower year over year payout within the last five years. In 2007, TCO’s dividend was $1.54 (almost a 20% increase from 2006). TCO’s yield grew to $1.66 in 2008 (a 7.7% increase) and maintained the payout at that rate in 2009. In 2010, TCO’s dividend grew to $1.8659 (a 12.4% increase), including an increase at the very end of 2010.
- NOTE: TCO is less prone than most REITs to substantially grow its portfolio than to improve the quality and return of its already existing properties.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: Data is derived from Morningstar and/or Yahoo Finance. Yield is but one consideration in choosing an investment, and each investment should be considered relative to the total portfolio.