Belly Up To The Bar - The Top 20 Highest-Yielding eREIT Preferred

by: Rubicon Associates

The eREIT preferred universe has 113 issues in it, an average stripped yield of 6.97% and an average stripped price of $24.17.

The top 20 eREIT preferred have an average stripped yield of 9.35% and an average stripped price of $20.42.

The top 20 eREIT - No Malls preferred have an average stripped yield of 8.28% and an average stripped price of $23.05.

The top 20 eREIT - No Repeat preferred have an average stripped yield of 8.49% and an average stripped price of $22.24.

The top 20 no fluff style.

Folks often ask me to do one of my "no fluff" notes where I compile data on sectors and give them the results without a lot of opinion or ancillary word count. It has been a while since I have done a "no fluff, all stuff" note, but I was always taught to give the people what they want (within reason), so here we are.

Given the change in expectations regarding rates (well, change for a lot of folks - I never expected much in the way of higher rates and have said as much), folks are once again on the hunt for yield. After nearly a decade of dismally low rates and the cash flow that is derived from rates, we find ourselves still mired in rates that do not necessarily accommodate investors looking for income (you know, to afford those pesky little wants like food, shelter and clothing - and the occasional trip to Europe to gaze at the wonders socialism has brought to that continent). In order to help foster ideas and "I'll have to look at that" lists, I give you the no fluff top 20 highest-yielding equity REITs (heretofore called the NFTT).

Belly up to the income bar and take a look at the menu. Note that the calorie count (risk) of the menu is high, which means that it might taste good but that doesn't mean it's good for you. Each diner in the No Fluff restaurant should know their risk appetite and be sensible if they decide to eat at the top 20 buffet.

First, the full top 20 list is as follows:

The stripped yield, shown graphically below:

The list above is, as one would expect, dominated by the stressed and distressed, chief among them the second-tier malls CBL & Associates (CBL), Washington Prime Group (WPG) and PREIT (PEI). The largest contributor - in terms of number of issues - is the perpetual suffering machine called Colony Capital (CLNY) with six issues making the list (Colony just announced two new board members and the "strategic review" that usually precedes something clever and typically counter-productive). I will note here that I own the Colony Series E (CLNY.PE).

Many investors prefer not to even look at tier two malls. Stripping out mall exposure and recreating the NFTT yields the following list:

The two largest entries into this list are Bluerock Residential Growth (BRG) and Hersha Hospitality Trust (HT). I have written on Bluerock before (the difference between the various series) and own the Series A (BRG.PA). Stripping out the malls costs the NFTT 107 basis points on a stripped yield basis, which helps further evidence the high calorie count of malls on the menu.

The stripped yield, shown graphically below:

If the NFTT diner wants a sample of everything, but nothing more than once, the list can be re-created to include only the highest-calorie sampling of every issuer.

The sampler menu, with malls back on the menu, gives investors 20 basis points back in yield (not as high as multiple issues, obviously). Note that when viewed in this context, we see a greater variety of sectors and issuers. Digital Realty Trust (DLR) joins this group due to the rate on the Series H (DLR.PH) and the fact it will be callable (the yields are annualized). I will note that I own Plymouth Industrial (PLYM) Series A (PLYM.PA) and CorEnergy Infrastructure Trust (CORR) Series A (CORR.PA) on this menu.

The stripped yield, shown graphically below:

As I mentioned Colony Capital (by name) earlier, I thought I might show its various issues in isolation. This is not because I own the Series E or because I think it is special - it is merely because it has multiple issues from which to choose.

Colony is somewhat interesting as, much like the NorthStar complex it merged with, it doesn't fit neatly into a box. The company has hard real estate assets (albeit fewer than it did at the merger and even fewer than NorthStar before it "added value") as well as financial assets (CDOs and CRE debt), and is currently (once again) in a state of flux as to what it wants to be.

The stripped yield, shown graphically:

Similarly, I culled the malls from one of the lists and thought it might be interesting to look at them in isolation (same caveat as above). Everyone knows the issues with the mall space, so I won't go into that here.

The stripped yield, shown graphically:

Finally, the following chart shows the highest-yielding (stripped yield basis) preferred from Colony and the malls. Note that compared to the malls, Colony is a bastion of stability.

If folks find the no fluff approach to the top 20 list helpful, perhaps I will do the mortgage REITs and shipping sectors next (because nothing complements the fried bacon double burger better than a fried Snickers and a double caramel latte when it comes to high-calorie, higher-risk meals).

Disclosure: I am/we are long CLNY.PE, BRG.PA, PLYM.PA, CDR.PC, CORR, CORR.PA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.