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  • The 2 Best Dividends Your Missing - Why You Need To Be LONG SIR & CWH 0 comments
    Aug 7, 2012 2:34 AM | about stocks: CWH, SIR

    I have spend a lot time underwriting 2 of my favorite REITS - SIR and CWH. While I think every portfolio needs to have a balance between dividend paying stocks/REITs, growth stocks, etc. Investors really need to consider going long now while the valuations are attractive. I would suggest doing your due diligence and going long before other investors wake up and soak up the yield.

    First of I should state I work for a highly respectable Commercial Real Estate Capital Markets firm, so parts of my analysis reviews these 2 holdings as how a Real Estate Investor would underwrite their Portfolio

    1) CWH - Currently this REIT trades at a 10.80% yield based on today's close pricing of $18.51, investors are offering a huge discount compared to the underlying portfolio value. Investors have hammered this REIT over the past year as management has stripped portfolios within the REIT such as GOV and SIR. This investor sentiment causes these extreme value add returns. The Portfolio is 84.8% occupancy which is up slightly from 84.60% at end of 2011. This signals there is a still strong growth potential in the portfolio's occupancy that would actually grow the FFO/future dividends. Now CWH primarily invests in Office properties -- meaning that you won't see extreme jumps in occupancy until unemployment lowers. However, this is where the dividend is important. Value add investors often will look to acquire these non-stablized office properties at a 6% to 9% cap rate (yield) and stablize to a 10% return + an unlevered basis 3 to 4 years out from time of acquistion. You as individual investor have an opportunity to buy in at a 10.80% yield day one with potential for dividend growth and share price growth. This is a safe long term bet on employment growh There is a lot to like her but a encourage you to read their SEC filings.

    2) SIR - this REIT as actually been warmly received by investors since its IPO, given that it yields currently trading approximately a +7% yield -- if you back out the special dividend, its closer toa +6% yield. SIR has 3 strong attributes going for it making it a solid long term stable investment for your portfolio

    • The Portfolio is stable at 95.6% occupancy, naturally, this should be higher given NNN (single tenant/low management building) are typically 100% occupied
    • The Portfolio controls vast land holdings in Hawaii. While ground rent has dipped since the hey days of 2007, owning the ground is key to owning in Hawaii. Assuming SIR holds these ground leases until expiration they have the opportunity to either extend (not likely) and more likely take the building that is currently owned by another investor. While it may seem like a hostile takeover, that the building owner is forced to hand over the property over the owner of the ground/dirt, it is simply part of the business.
    • Finally only 36.1% of the portfolio square footage or 43.7% of the total rent is exposed to rollover risk (lease expiration) until 2021, meaning the portfolio is extremely stable for the near and long term. Rollover risk is also not always bad given how below market rental rates can be, there is an opportunity to increase rental rates.

    Disclosure: I am long SIR, CWH.

    Themes: REITs, Dividends Stocks: CWH, SIR
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