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Archive for the ‘REITs’ Category

14
Feb
2012

5 reasons to invest in the Empire State Building IPO

by Fred Marion

The crown jewel of the Empire State Realty Trust’s portfolio is quite possibly the most famous building in America: the Empire State Building. Investors will soon get a chance to own a piece of the building following the IPO in the coming months. Here are five reasons to consider buying stock in the Empire State Realty Trust (Ticker: ESB):

1) The Empire State Building. Obviously, the Empire State Building serves as more than just office space; it’s a tourist mecca that draws more than 3 million visitors a year. Those visits aren’t free, either. “The average ticket revenue per admission for each of the 11 years from 2000 through 2010 increased at a compound annual growth rate of 9.9% and the growth rate during each of those years, on a year-over-year basis, has never been negative,” ESB writes in their S-1 filing. Today, the average visitor shells out $18.61 to journey to the top of the Empire State Building. Those tourists alone generated $156.7 million in revenue for the nine months ended Sept. 30.

2) Dividends. Because the Empire State Realty Trust is a REIT, the company will be required to distribute at least 90 percent of its taxable income in the form of dividends. That means investors will get a nice payout every three months (although be aware that these payouts will be subject to higher taxes than normal dividends).

3) More than one office. All told, ESB operates 12 office buildings with a total of 7.7 million rentable square feet of office space. The bulk of that property is located in the heart of Manhattan, and 79.9% of the company’s office space is currently leased.

4) Metro Tower. ESB owns land in Stamford, Conn., that they plan to turn into a 340,000-square-foot office building and garage dubbed Metro Tower. The swanky corporate space will be part of a planned mixed-use “Metro Green.” When the Green’s complete, the 17-story Metro Tower will be surrounded by three residential buildings. That should help draw commercial tenants to Metro Tower. And if it doesn’t, the amenities at Metro Tower should. “In-building services and amenities will likely include on-site building management; concierge; 24/7 security; multi-media conference center; fitness center; dining facility; sundry shop; and access to landscaped rooftop gardens and its garage,” ESB writes.

5) Green leaders. A big driver behind ESB’s upcoming IPO is the need to raise capital for further improvements to the Empire State Building. Many of these changes are designed not just to drive up rents and rentable space, but also to improve energy efficiency at the building. That should lead to stronger profits for ESB and longer-duration tenants.

Photo by linder6580.

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08
Feb
2012

The Top 5 best triple-net lease REITs

by Fred Mason

Triple-net lease REITs work like this: a company buys an office building then leases it back to the seller for a long term (typically 10 to 20 years). This is beneficial to both the buyer (the REIT) and the seller (the tenant).

How? The seller no longer has a mortgage to deal with, and they get a tax deduction for paying rent. The REIT gets a steady stream of income in the form of rent checks.

The REIT also benefits because the seller has to keep paying property taxes, insurance and maintenance costs (per the lease agreement). That’s where the name “triple-net” comes from. It’s generally regarded as a safer type of REIT than those that deal in mortgage derivatives and riskier mortgage securities.

A handful of REITs specializes in this form of triple-net leasing. Here are five with outstanding yields:

1) Caplease (LSE), 6.23% yield. A small-cap REIT focused on retail and office space.

2) Lexington Realty Trust (LXP), 5.61% yield. Another small-cap REIT focused on retail and office space.

3) LTC Properties (LTC), 5.32% yield. LTC focuses on the growing and lucrative health care field with leases on nursing and health facilities.

4) National Retail Properties (NNN), 5.65% yield. Holds 1,500 properties throughout the United States.

5) Realty Income (O), 4.70% yield. A stable REIT with tenants like FedEx and BJ’s Wholesale Club.

Photo by Svilen001.

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06
Feb
2012

Why do REITs have such high dividend yields?

by Fred Mason

High dividend yields equate to high risk, and Real Estate Investment Trusts (REITs) have some of the highest yields on stock exchanges right now. That means they’re among the riskiest of investments right now, too. To understand why their yields are so high, you first need to understand how REITs work.

REITs make money by borrowing gobs of cash at low interest rates, then using those greenbacks to buy higher-yielding mortgage securities (things like rental properties, derivatives or office space). It’s similar to how banks work. They borrow cash from the Federal Reserve at near-zero percent interest rates, then loan that money out to home buyers and small businesses at rates starting around 3.5 percent.

Banks make stable loans. REITs make riskier bets, and that means they stand to make more money. Once the interest rates start to rise, though (and the Fed has signaled that could start as early as 2014), the profitability of REITs goes down (sometimes dangerously fast).

That’s why investors have been wary of REITs. The historically low interest rates set by the Fed can’t last. REIT investors know that, so they diligently watch interest rates while holding shares in a REIT.

Before investing in REITs, there’s one other factor you need to understand: dividends from REITs are subject to higher taxes than normal dividends. This happens because REITs enjoy special tax benefits. By paying out 90 percent of their income as dividends, the REIT itself doesn’t have to pay taxes.

So long as you understand the unique risks, investing in REITs can be very profitable. Let’s take a quick look at the Top 5 highest dividend-yielding REITs:

1) Invesco Mortgage Capital Inc. (NYSE:IVR). Yield: 21.45%. Residential and commercial mortgage-backed securities.

2) American Capital Agency Corp. (NASDAQ:AGNC). Yield: 18.86%. Residential mortgage pass-through securities.

3) Resource Capital Corp. (NYSE:RSO). Yield: 16.72%. Invests in real estate debt through a series of subsidiaries.

4) CYS Investments Inc. (NYSE:CYS). Yield: 14.84%. Residential mortgage pass-through securities.

5) Chimera Investment Corporation (NYSE:CIM). Yield: 14.10%. Residential and commercial mortgage-backed securities.

Photo by Gerard79.

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13
Dec
2010

Why are REIT yields so high? (AGNC, CIM, RSO)

by Fred Mason

For months, I’ve argued that REIT yields are high due to investor fear of stocks that mentions words like “adjustable-rate,” “mortgage-backed” or “pass-through securities.” I just stumbled across an interesting article at Fool.com that argues there more be less apparent reasons for the high-yields on REITs like American Capital Agency Corp. (NASDAQ:AGNC), which is yielding 19+ percent, Chimera Investment Corporation (NYSE:CIM), which is yielding 17+ percent and Resource Capital Corp. (NYSE:RSO), which is yielding 14+ percent.

The REIT play is only good so long as the Fed keeps lending rates down Fool.com argues. Once the spreads on interest rates go down, so will the profits at AGNC, CIM and RSO. Since, the REITs are required to pay out 90 percent of their income to shareholders, the only way for them to maintain their growth will be through dilutive share offerings, which will drive down the yields.

Currently, Fool.com argues, REITs are paying out a lot because they’re getting subsidized by the government. While that argument may hold water two years from now, I don’t see the logic in selling off the stocks in favor of lower-yielding dividend plays right now. Why not wait until the Fed’s rate increases look imminent before jumping ship on 19+ percent returns? That’s the question the article fails to address, and it’s the reason I’m still bullish on REITs.

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28
Nov
2010

Life Lessons: How to make more money

by Ed Roven

Of the 13,480 individuals and families who made more than $10 million a year in the U.S. in 2008, only 19 percent of the income they brought in came from wages and salaries.* Therein lies the key to generating wealth; namely that the rich don’t “work” to make money. They put money to work for them.

Robert Kiyosaki talks about this concept a lot in his book Rich Dad, Poor Dad, and it fundamentally changed the way I approach my finances. The idea is that by putting your money into ventures or assets that generate money for you, you can exponentially increase your earnings power and grow your income while actually cutting down on the amount of time you spend working.

One area where Kiyosaki’s often vague is how exactly a person is supposed to do such a thing. He mentions buying real estate, buying car washes, buying storage units or trailer parks for rental, etc., but that’s not all that helpful for most people who are already in debt and looking for a way out.

My answer? Dividend stocks. In particular, I like REITs or Real Estate Investment Trusts. REITs are basically collections of investors who pool their capital to buy income-generating real estate such as apartment complexes or shopping malls, then share the profits with all the investors. Best of all: REITs are required by law to pay out 90 percent of their net income as dividends to shareholders. That can add up to a lot of cash with some REITs paying out nearly 20 percent a year.

Think about that, if you could somehow get $250,000 invested in a portfolio of dividend paying stocks that shell out 20 percent per year, you could be making $40,000 each and every calendar year (before taxes) without lifting a finger!

That’s the key to building wealth, and the sooner you get started, the sooner you’ll be on your way, even if you can only contribute $25 per month! At that rate, you’d be putting in a mere $300 a year, but you’d still hit $250,000 in 26 years if you could compound your rate 4 times a year (when you receive your dividends) and keep plugging away with your $25 a week contribution at 20 percent interest.

*Source: Wealth, Income, and Power by G. William Domhoff.

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09
Sep
2010

Time to jump ship at REITs Macerich (MAC) and AvalonBay (AVB)?

by Fred Mason

There’s not much I like more than a high-yielding REIT. I’ve been accumulating positions in REITs like American Capital Agency Corp. (NASDAQ:AGNC) and Chimera Investment Corporation (NYSE:CIM), both of which have yields over 17 percent, for months. But some of their competitors are showing worrying signs. Among them? The Macerich Company (NYSE:MAC) and AvalonBay Communities, Inc. (NYSE:AVB).

Despite yielding 4.6 percent, Macerich-investors have taken some confidence-crumbling potshots in recent days as insiders at the company have started shedding shares. Chairman and CEP Arthur Coppola sold 252,275 shares on Sept. 2 and Sept. 3 for $11 million, according to Barron’s. That was the biggest one-man orgy of insider selling at the company in the past six years. Macerich’s CFO, Thomas E. O’Hern, joined in the fun, too, dropping 9,500 shares on Sept. 2 (good for $410,000).

Why now? Two obvious reasons: 1) The company lowered their dividend in May to 50 cents; and 2) the stock’s up 19+ percent year-to-date. What’s not obvious is what they see in the stock’s future that made them pick early September for a sale. Are they feeling weakness in the housing markets? Or are they anticipating another dividend drop? Who knows, but it looks like they’re not alone.

“In general in the last week or so there’s been increased selling at REITs,” Ben Silverman, research director at InsiderScore.com, told Barron’s.

They were joined by AvalonBay, where insiders (including the company president, Timothy J. Naughton) have sold $10.5 million in stocks over the past month. Selling AVB seems to make a bit more sense to me. The stock’s up 62 percent in the past 12 months, and it’s above the share price it hit in the months before the Great Recession took hold.

Insider selling’s difficult to interpret, but it’s hard to argue that company honchos sell when they’re expecting big gains and good news in the coming months.

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05
Sep
2010

Options pointing to a buy for American Capital Agency Corp. (NASDAQ:AGNC)?

by Fred Mason

American Capital Agency Corp. (NASDAQ:AGNC) triggered a low Put/Call volume alert, according to Market Intellisearch – a sign that investors are almost all in consensus on the upward momentum in a stock. AGNC averaged 3.80 calls traded for each put contract, good for a Put/Call ratio of 0.26.

Indeed, the stock seems to be in the midst of a surge as it approaches its late-September dividend. It’s a familiar refrain for high-yield REITs like AGNC. The stock fumbles around for two months after its dividend, then starts a surge as dividend-hungry investors move back into the stock.

It’s hard to resist a yield that’s approaching 20 percent, after all, and there are lots of REITs out there offering just that. Among them? Chimera Investment Corporation (NYSE:CIM) with a 17.2 percent yield and Resource Capital Corp. (NYSE:RSO) with a 16 percent yield. They’re so attractive, in fact, they look like buy-and-holds to me – especially when the Dow’s in negative territory on the year.

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02
Sep
2010

Price target on Chimera Investment Corporation (NYSE:CIM)? How about $4.25

by Fred Mason

Improvement in credit markets in July promoted Jefferies to reiterate a buy rating on Chimera Investment Corporation (NYSE:CIM). “(Credit performance) includes the first instance of improving month over month 90-day delinquencies since the credit crisis began, and continued declines in the total delinquency rate,” Jefferies said in the report. It’s not all good news, though, Jefferies lowered their 2010 EPS estimates for the company from $0.73 to $0.70. Still, the price target doesn’t account for the stock’s 17+ percent yield, and it appears attractive in the long-term. The REIT reported a Diluted Normalized EPS of $0.20 on June 30.

Posted in CIM, REITs, trading stock | No Comments »

20
Jul
2010

Best deflation stocks and sectors

by Fred Mason

As the pendulum swings from fear of inflation to fear of deflation, investors will begin reassessing their portfolios to find good deflationary hedges. In general, dividend paying stocks are safest place to be – particularly since you’ll be earning relatively more on your dividends than you would if the inflation rate was normal or high.

Here are a few high-yielding dividend stocks (REITs) that could be of interest as deflationary plays:

  • Chimera Investment Corporation (NYSE:CIM), Current Yield: 18.53%
  • American Capital Agency Corp. (NASDAQ:AGNC), Current Yield: 20.79%

Disclosure: I’m currently invested in both of the above stocks.

Since deflation slowly erodes a company’s earnings power, it often creates a tepid environment for stocks. Inverse ETFs give investors a quick and dirty way to profit from down markets. Here are a few to research more when things get hairy:

  • ProShares UltraShort Russell2000 (NYSE:TWM), seeks twice the inverse of the daily performance of the Russell 2000 Index
  • ProShares UltraShort Dow30 (NYSE:DXD), seeks twice the inverse of the daily performance of the Dow Jones Industrial Average
  • ProShares UltraShort S&P500 (NYSE:SDS), seeks twice the inverse of the daily performance of the S&P 500 Index
  • ProShares UltraShort Financials (NYSE:SKF), seeks twice the inverse daily performance of the Dow Jones U.S. Financials Index
  • ProShares UltraShort Real Estate (NYSE:SRS), seeks twice the inverse daily performance of the Dow Jones U.S. Real Estate Index
  • ProShares UltraShort QQQ (NYSE:QID), seeks twice the inverse of the daily performance of the NASDAQ-100 Index

Note: All of the above are 2X ETFs, which mean they’re leveraged 200 percent. Small changes in the market can create huge swings in the above stocks. That could mean large profits, but it could also mean enormous lossses. Always consult a qualified professional before investing.

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