This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Investors Have Many Sweet REIT Flavors

There is no better way for investors to enjoy the benefits of consistent income and strong growth than to invest in REITs. As I wrote:

"Remember, REITs offer the best of both worlds: the potential for long-term capital appreciation and a steady income stream. It's the attraction to dividend repeatability that makes REITs one of the most attractive investment alternatives today. That's why intelligent investors should consider REITs as a core asset class and one that will help them sleep well at night."


So Are REITs Overvalued Today?

It seems that the demand for REIT dividends has sparked considerable debate as higher valuations have made certain REITs less attractive. It seems that many of the safer REITs -- especially the blue-chips -- have been trading at or above fair value.

In the May 13 issue of Barron's, writer Andrew Bary asked Mike Kirby, director of research at Green Street Advisors, whether REITs were overvalued. Kirby's reply:

"Let me start with the least-favorable comparison -- stocks. REIT's trade for about 25 times 2013 earnings, and when I speak of earnings, I am using AFFO, or adjusted funds from operations, which is the industry's primary earnings benchmark. The S&P 500 trades at 15 times forward earnings. That suggests that REITs are awfully expensive.

"But I'll throw you a couple of mitigating points. One is that REIT earnings growth is going to be very impressive. We project 9% growth in AFFO over the course of each of the next two years, and there is no reason that is slows down much after that because we are in the sweet spot in the real estate cycle. Over the past eight years, REIT multiples have been higher than the S&P 500. We have to ask ourselves if this is a new normal situation."

He went to say that given the current environment, REITs are trading at fair valuation:

"Given the growth outlook, REITs look pretty attractive in a low-yield world. When we add it all up, we conclude that REITs are somewhere within a fair-value range, maybe at the pricey side of that fair-value range, but certainly not dramatically overpriced."

Check Out These New REIT Flavors

Last week I interviewed Jack Cuneo, CEO of Chambers Street (see the interview here). On May 21 this triple net (office and industrial) REIT plans to list a $125 million tender offer for shares that should settle between $10.10 and $10.60. There will be no lockup, and the modified "Dutch auction" tender offer should pay a dividend in the range of 4.75% to 5.0%.

Another new REIT coming down the track is Cole Holdings (COLE). Like Chambers Street, Cole plans to list shares to take advantage of the liquidity opportunity for the nontraded REIT investors. The portfolio (CCPT3) consists of 1,014 properties (in 47 states), and the company intends to merge its advisory platform, Cole Holdings, to create a hybrid investment model.

Another new REIT, Amanda Hoffler, plans to list shares in its diversified product platform. With a focus on Mid-Atlantic markets (Hampton Roads, Va.; Richmond, Va.; and Raleigh-Durham, N.C.), Amanda Hoffman intends to provide a balance of office (43.8% of ABR), retail (38.2% of ABR), and multifamily (18% of ABR).

Across the border, Canadian Tire (CTC.A.T) announced last week that the company was spinning off its real estate assets into a standalone REIT. The Canadian retailer plans to list REIT shares to monetize a portfolio of around 250 freestanding stores.

Stephen Wetmore, president and CEO of Canadian Tire has said the deal would increase the company's financial flexibility and give it funds at an attractive cost of capital.

My Favorite Flavors

I'm not sure about Canadian Tire. It seems that the company could be more aligned with shareholders by selling the stores to an existing REIT such as Realty Income (O), Kimco (KIM) or American Realty Capital Properties (ARCP). All of these REITs have experience in managing REIT securities and more importantly, they have diversified operating platforms. It would appear that Canadian Tire's "circle of competence" is selling tires, not owning real estate. Oh well, great day!

Much like selecting an ice cream flavor, picking REITs can be a very rewarding experience. It's important to stress that investors should pay special attention to the balance of current operations, expansion, leverage, and shareholder value.

Remember that REITs benefit in the current low-rate environment as they are able to borrow at a low cost, reinvest, and achieve delicious operating results for investors.

Of course the most rewarding thing about REITs is that the dividends should grow.

Baskin-Robbins advertised its 31 original flavors. I now have a list of 11 original REIT flavors. I'd argue that these 11 REIT's sweetness is longer-lasting.

They have not only maintained the consistency of paying annual dividends; they have also managed to increase dividends every year. Now that's a lasting treat.

Courtesy of SNL Financial

Everything may not be eatable, but these days it seems that just about anything can be REIT-able. The REIT menu is growing and when selecting your favorite brand remember what Benjamin Graham wrote:

"An investment operation is one which, upon thorough analysis, promises safety of principal and satisfactory return. Operations not meeting these requirements are speculative."

Brad Thomas, a.k.a. The Intelligent REIT Investor, will be attending The Money Show in Las Vegas on May 14-17 and then the Annual ReCon ICSC conference from May 20-21 (also in Las Vegas). While there, Thomas will conduct interviews with 15 REIT CEOs and provided updated commentary and videos on The Street.

At the time of publication, Thomas had no positions in securities mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

2 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,001.22 -38.27 -0.22%
S&P 500 1,988.40 -3.97 -0.20%
NASDAQ 4,538.5510 +6.4470 0.14%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs