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What the World's Largest Sovereign Wealth Fund Will Buy Soon

Stocks in this article: FUR VNO GOV SLG

FUR frequently invests in large real estate transactions but hasn't worked with NBIM yet. Winthrop is currently paying a dividend with a yield to price of around 6%. Its share price has ranged from $10.32 to as high as $11.40 since Oct. 15. Below is a one-year price chart with its improving free cash flow. FUR Chart FUR data by YCharts

FUR's generous dividend represents a payout ratio of 250% of the company's earnings (or "funds-from-operation" as they call it in the world of REITs), which is quite lofty. Winthrop trades at a forward (one-year) PE ratio of only 9.

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The NBIM executive quoted in the Journal article stated, "We like having partners -- 50% owners or thereabouts." For tax purposes the SWF will set up domestic REITs in the U.S. in which it plans to hold, at most, a 49% stake. "I don't know when we will get comfortable with other structures," he said.

Gateway cities like Boston, New York and Washington with strong prospects for both population growth and economic expansion are the SWF's priorities. The NBIM executive wants areas where there is a lack of real estate supply, "...though he acknowledged that staying in that tight-knit pocket of markets could have the fund missing out on activity in other hot markets like Dallas or San Francisco."

Like all disciplined and selective investors, the SWF of Norway knows that it'll probably miss some great deals in those hot markets, "...but we're OK with that," the executive said. That's the way some of the largest REITs in the U.S. operate as well.

Examples include Vornado Realty Trust (VNO), a New York-based REIT that specializes in mainly commercial property. VNO has a market cap of $14.75 billion and a dividend yield of around 3.5% with a payout ratio of 93%. The chart below shows its one-year price and free cash flow history. VNO trades at a forward PE of 15.54. VNO Chart VNO data by YCharts

A very unique way to participate in the office REIT space is with Government Properties Income Trust (GOV), an office REIT with about $1.7 billion of office properties in 31 states and Washington D.C. As its name implies, it likes to rent properties to government tenants. In fact 71% of GOV's annualized rental income comes from the federal government.

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