Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
Yes, NNN's preferred would also be vulnerable when interest rates return to normal. However, O and many other REITs, could easily see a 30% correction in the next few months. However, I doubt if NNN's new $25 preferred will drop to $17.50 (a 30% correction).
Trading at 18 times sales is one of the easiest ways to see that the company is overvalued. NNN's common is trading at about 14 times sales, which is still too high, but not quite as high.
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
Purchasing O at the current price level of $50 may turn out to be a poor investment for the long term. Per Yahoo, O is currently trading at 18 times sales, which is an incredibly high number. It's the equivalent of paying $180,000 for a rental property that brings in only $10,000 in rent per year. While O's properties are normally triple net leased, paying 18 times sales for real estate is clearly overpaying. Some of the other REITs have also dropped 10% recently, so the market appears to believe that many are overvalued. A few years from now when interest rates return to normal, the price of O could easily be in the upper 30's to very low 40's.
For investors looking for income, I'm not sure why investors would not just pick up the new NNN preferred E stock with a coupon rate of 5.70%. They are not trading yet, but should be available soon.
Optimizing Triple Net Lease REIT Investment: Time To Sell Realty Income [View article]
After reading some of the comments on this article, I wanted to comment to those considering a short position in O, as I may soon do the same.
In the short-term, the market is not always right. However, in the long-term, the market is usually right. When taking a short position in any company, it is normally prudent to cover with some call options. While they may be an expensive "insurance policy" the December 2013 call options at $55 would help cover your short position and reduce your risk. Just be sure to buy the purchase the right amount of call options to cover the shares you have shorted. While they may expire worthless, should the stock tank, it is an option worth consdering. And if the stock tanks, you will lose the call options but should be able to cover your short position.
Optimizing Triple Net Lease REIT Investment: Time To Sell Realty Income [View article]
Dane, thanks for another quality article. As a long term investor in real estate, picking up O with a cap rate of about 5% is a poor investment. The Fed is artificially lowering interest rates, thus inflating values of REITs. Investors are hungry for yield, but they will pay the price for this down the road when they finally realize that you can't buy real estate with a cap rate of 5%. Good company, just very overpriced at the current level. NNN is also a good company, but shares are too expensive.
13 New Preferred Stocks Provide 6.2% With Increased Principal Protection [View article]
Doug, thanks for another quality article on the right way to buy preferreds. I've read your book and may subscribe to your service soon, as it would quickly pay for itself because I am a big investor in preferred shares.
Many preferred shares issued in the past year now trade over $26 per share and a key way to make money on preferreds is to purchase at the right price. I've noticed that TD Ameritrade is probably one of the best firms to buy shares OTC.
I appreciate your articles and you sharing your information with other investors.
Mike, thanks for your unbiased articles over the past two years. They were very much appreciated. Fixed income and bond investors, such as myself, will miss your writing skills and insight into these areas that are often overlooked.
CommonWealth REIT: Beware The Dividend Trap [View article]
I started a position earlier this week when the company got under 50% of book value. While the dividend will likely be reduced sometime in the near future, I think that cut is already priced in. I don't like their management agreement with RMR, but can't find another REIT stock that has investment grade debt and is trading for such a discount to book value.
CommonWealth REIT's Exceptional Portfolio Is Spoiled By The Public Perception Of RMR [View article]
Thanks for the article and update on the company. While I don't like the way they farm out management to RMR, the company is now trading at about 50% of book value and some of the properties may be worth much more than book value. It's worth taking a position in the company at these levels, as a significant dividend cut looks already priced into the shares.
REIT Dividend Yields: New Low Rates Are Normal, But Not A 'New Normal' [View article]
Yes, I had to turn over a number of rocks, and some bad apples, to find FREVS. Then had to do a complete review of the balance sheet and income statement - and then had to sit back and wait until one day on my watch list I saw they dipped down to $17 per share and thought it was time to finally buy. When they were at $17, the stock was trading at only about 10x FFO for 2011 and looked cheap.
This week I started a very small position in MPW. I still need to do some more research, but they look like one of the mid-cap REITs that are not followed by many investors.
Public Storage - Like The Limbo, How Low Can You Go [View article]
The old Shurgard debt has been around for a long time, but it was always a very small part of their capital structure. Overall, the company basically has no debt. Bond funds yield next to nothing, so the preferred shares are still a possible alternative to certain investors - especially for retirees and non-profits. Their sister company, PSB, also has very low debt and I am sad to see my PSB-P 6.7% shares called.
Just my thoughts here, but a retired investor that still wants income, should consider shares. The Fed has claimed that they will not raise rates until 2014, but it could be a long and slow recovery and investors can always sell shares should there be any hint of rising income rates. Personal opinion only, but rates may not even rise until 2015 or 2016.
MCD is issuing 30 year bonds at about 4%, and I like the company and their track record, but the "Happy Meal" for my non-profit is always PSA's preferreds.
REIT Dividend Yields: New Low Rates Are Normal, But Not A 'New Normal' [View article]
Mike, investors just need to look around a little bit to find some of the smaller cap companies. Yes, I recognize the IRET and UBA names as I have preferred holdings in both of those companies, with larger holdings in UBA and they have always been one of my favorite REITs. Your articles on these companies have always been appreciated. Hopefully investors are finding value in your articles as well.
In late July, I started taking a decent position in a very small cap REIT that rarely trades. I was hoping to pick up more shares, but was able to purchase 1,250 shares of FREVS at prices right around $17 per share. If you check the trading volume in August, most of those purchases were mine. At first look, the balance sheet of FREVS looks poor - but after backing out depreciation, their interest rate coverage is over 2.5x times and they are a solid little REIT that has 1,075 apartment units and 1M square feet of commercial space. The balance sheet looks bad for a reason: the company was started in 1961 and one of their old apartment buildings has a book value of about $58,000 (yes, that figure is correct), but the units rent for over $1,000 per month and the occupancy rate is well over 90% for their apartment units. They also have other apartment buildings that were purchased in the 1960's and 1970's and book value on those are very low as well.
When I was buying at around $17, the yield was close to 7%. The dividend has been $1.20 over the past few years with no increases, however, they paid a special dividend a few years ago when a building was sold and shareholders had some capital gains. Had to wait quite some time to buy shares at a price level I liked, but they are a nice addition to my portfolio. Today they closed at $18.45 on volume of 300 shares. I'm not selling any shares, as I expect some capital appreciation in the future.
Public Storage - Like The Limbo, How Low Can You Go [View article]
Mike, the yields on some of these preferreds are getting incredibly low. For some younger investors, a yield close to 5% is simply too low. However, for some retirees in their 70's and 80's, some of these preferreds may still make sense. Considering the issue is rated A- by Fitch and the risk of default is extremely low, this could be a nice alternative to a bond fund that is yielding less than 3%. Also, the non-profit fund I help manage will likely pick up some of these shares based on the credit quality of PSA and also due to the fact that they don't pay any income taxes in the investment income.
For my personal portfolio, I would pass on the issue, as the rate is just too low.
REIT Dividend Yields: New Low Rates Are Normal, But Not A 'New Normal' [View article]
Mike, thanks for another good article on the valuation of the REIT sector. While many of the better know REITs are trading at a premium, there are still some decent stocks out there in the sector. Investors just need to be patient, and spend some time looking for value.
At least for right now, I see value in some of the small to mid cap REIT stocks. While they are somewhat more risky than the larger REITs such as Kimco, it is certainly worth picking up shares of some of the smaller REITs in a well diversified portfolio.
Realty Income: A Phenomenal Company But An Overpriced Stock [View article]
A number of great comments from RichJoy and I have to agree with his message.
In the past, most of O's tenants were not investment grade (I think the figure now is about 20%), so generally speaking, they were able to charge higher rents and pass the dividends along to shareholders. In the past year, two of their major tenants that represent about 8% of base rents, filed for bankruptcy (Buffets and Friendlys) and the company appears to be looking upgrading their tenant base and is looking for more investment grade tenants. Generally speaking, the cap rates for investment grade tenants tend to be lower and this should also slow down the growth and dividends for the company.
Coca-Cola is also a great company and has paid dividends for over 100 years, but that does not always mean the stock has been a "buy" when trading at high multiples. There are always other great investment ideas out there.
Realty Income: A Phenomenal Company But An Overpriced Stock [View article]
Dane, thanks for a fair article on the valuation of Realty Income. The company does have a fantastic track record and a nice dividend history, but at about 20x FFO and three times book value (many of their buildings were purchased in the last 10-12 years and FMV on those is probably close to book value), the company is clearly overvalued at the present time. Mike Terry, another SA author, has reached the same conclusion based on a recent article.
There are many other companies with decent growth potential that have a dividend rate of 4%, and are not paying out all of their earnings, but Realty Income is paying out close to 100% of FFO and still only has a dividend rate of about 4%. Yes, they might be able to raise it another .000001 per share, but it's more of a "gimmick" than a real raise.
Some of the super-bulls on real estate can't seem to understand that people can actually LOSE money on stocks when they go down in value.
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
Trading at 18 times sales is one of the easiest ways to see that the company is overvalued. NNN's common is trading at about 14 times sales, which is still too high, but not quite as high.
Realty Income Is Simply A Great REIT And Nowhere Close To A Bubble [View article]
For investors looking for income, I'm not sure why investors would not just pick up the new NNN preferred E stock with a coupon rate of 5.70%. They are not trading yet, but should be available soon.
Good luck to all investors.
Optimizing Triple Net Lease REIT Investment: Time To Sell Realty Income [View article]
In the short-term, the market is not always right. However, in the long-term, the market is usually right. When taking a short position in any company, it is normally prudent to cover with some call options. While they may be an expensive "insurance policy" the December 2013 call options at $55 would help cover your short position and reduce your risk. Just be sure to buy the purchase the right amount of call options to cover the shares you have shorted. While they may expire worthless, should the stock tank, it is an option worth consdering. And if the stock tanks, you will lose the call options but should be able to cover your short position.
Best wishes to all investors.
Optimizing Triple Net Lease REIT Investment: Time To Sell Realty Income [View article]
kaptain lou
13 New Preferred Stocks Provide 6.2% With Increased Principal Protection [View article]
Many preferred shares issued in the past year now trade over $26 per share and a key way to make money on preferreds is to purchase at the right price. I've noticed that TD Ameritrade is probably one of the best firms to buy shares OTC.
I appreciate your articles and you sharing your information with other investors.
Off Line For Now [View instapost]
I wish you continued success in your career.
KL
CommonWealth REIT: Beware The Dividend Trap [View article]
CommonWealth REIT's Exceptional Portfolio Is Spoiled By The Public Perception Of RMR [View article]
REIT Dividend Yields: New Low Rates Are Normal, But Not A 'New Normal' [View article]
This week I started a very small position in MPW. I still need to do some more research, but they look like one of the mid-cap REITs that are not followed by many investors.
Public Storage - Like The Limbo, How Low Can You Go [View article]
Just my thoughts here, but a retired investor that still wants income, should consider shares. The Fed has claimed that they will not raise rates until 2014, but it could be a long and slow recovery and investors can always sell shares should there be any hint of rising income rates. Personal opinion only, but rates may not even rise until 2015 or 2016.
MCD is issuing 30 year bonds at about 4%, and I like the company and their track record, but the "Happy Meal" for my non-profit is always PSA's preferreds.
Thanks again for another quality article.
KL
REIT Dividend Yields: New Low Rates Are Normal, But Not A 'New Normal' [View article]
In late July, I started taking a decent position in a very small cap REIT that rarely trades. I was hoping to pick up more shares, but was able to purchase 1,250 shares of FREVS at prices right around $17 per share. If you check the trading volume in August, most of those purchases were mine. At first look, the balance sheet of FREVS looks poor - but after backing out depreciation, their interest rate coverage is over 2.5x times and they are a solid little REIT that has 1,075 apartment units and 1M square feet of commercial space. The balance sheet looks bad for a reason: the company was started in 1961 and one of their old apartment buildings has a book value of about $58,000 (yes, that figure is correct), but the units rent for over $1,000 per month and the occupancy rate is well over 90% for their apartment units. They also have other apartment buildings that were purchased in the 1960's and 1970's and book value on those are very low as well.
When I was buying at around $17, the yield was close to 7%. The dividend has been $1.20 over the past few years with no increases, however, they paid a special dividend a few years ago when a building was sold and shareholders had some capital gains. Had to wait quite some time to buy shares at a price level I liked, but they are a nice addition to my portfolio. Today they closed at $18.45 on volume of 300 shares. I'm not selling any shares, as I expect some capital appreciation in the future.
KL
Public Storage - Like The Limbo, How Low Can You Go [View article]
For my personal portfolio, I would pass on the issue, as the rate is just too low.
REIT Dividend Yields: New Low Rates Are Normal, But Not A 'New Normal' [View article]
At least for right now, I see value in some of the small to mid cap REIT stocks. While they are somewhat more risky than the larger REITs such as Kimco, it is certainly worth picking up shares of some of the smaller REITs in a well diversified portfolio.
Realty Income: A Phenomenal Company But An Overpriced Stock [View article]
In the past, most of O's tenants were not investment grade (I think the figure now is about 20%), so generally speaking, they were able to charge higher rents and pass the dividends along to shareholders. In the past year, two of their major tenants that represent about 8% of base rents, filed for bankruptcy (Buffets and Friendlys) and the company appears to be looking upgrading their tenant base and is looking for more investment grade tenants. Generally speaking, the cap rates for investment grade tenants tend to be lower and this should also slow down the growth and dividends for the company.
Coca-Cola is also a great company and has paid dividends for over 100 years, but that does not always mean the stock has been a "buy" when trading at high multiples. There are always other great investment ideas out there.
Realty Income: A Phenomenal Company But An Overpriced Stock [View article]
There are many other companies with decent growth potential that have a dividend rate of 4%, and are not paying out all of their earnings, but Realty Income is paying out close to 100% of FFO and still only has a dividend rate of about 4%. Yes, they might be able to raise it another .000001 per share, but it's more of a "gimmick" than a real raise.
Some of the super-bulls on real estate can't seem to understand that people can actually LOSE money on stocks when they go down in value.