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Digital Realty - >>> Interxion Acquires Land in Madrid for Future Expansion
Business Wire
September 9, 2020
https://finance.yahoo.com/news/interxion-acquires-land-madrid-future-110000438.html
Interxion, a Digital Realty (NYSE:DLR) company and a leading European provider of carrier- and cloud-neutral colocation data centre services, has acquired a 3.6-acre land parcel in a strategic expansion of its Madrid campus, Spain’s most highly interconnected data centre campus. The parcel is less than one kilometre from Interxion’s existing data centres and can support a facility with up to 34 megawatts of critical IT capacity encompassing more than 35,000 square metres.
Interxion’s Madrid facilities have become the primary hub for content exchange on the Iberian Peninsula – and in southern Europe more broadly. Customers who deploy their critical infrastructure with Interxion in Madrid gain direct access to leading global cloud providers on campus as well as access to communities of connectivity providers, platforms and enterprises on six continents through PlatformDIGITAL™, Digital Realty’s global data centre platform.
Interxion purchased the 14,550-square metre plot to build its fourth data centre in Madrid’s technology zone known as Silicon Alley Madrid, a part of the San Blas-Canillejas district. Construction of a 34-megawatt data centre would be expected to generate more than 500 jobs and drive significant economic impact, boosting GDP between €9 and €12 for every euro invested. The strategic expansion project underscores Interxion’s confidence in the region’s future as southern Europe’s digital hub and its commitment to the development of the digital economy in Spain.
"The recent restrictions on people’s movements have shined a new light on the role of data centres and the digital economy," said Robert Assink, Managing Director of Interxion Spain. "There is now heightened awareness of the importance of connectivity and access to the applications that enable us to work, study, consume content and shop from anywhere. Without data centres, it would not be possible to connect users and businesses."
Interxion has been operating in Madrid for two decades, driving technological development in the region and managing more than half of Spain’s internet traffic.
About Interxion: A Digital Realty Company
Interxion: A Digital Realty Company, is a leading provider of carrier- and cloud-neutral data centre services across EMEA. With more than 700 connectivity providers in over 100 data centres across 11 European countries, Interxion provides communities of connectivity, cloud and content hubs. As part of Digital Realty, customers now have access to 47 metros across six continents. For more information, please visit www.interxion.com.
About Digital Realty
Digital Realty (NYSE:DLR) supports the data centre, colocation, and interconnection strategies of customers across the Americas, EMEA and APAC, ranging from cloud and information technology services, communications and social networking to financial services, manufacturing, energy, healthcare and consumer products. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and Twitter.
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>>> Innovative Industrial Properties Acquires Michigan Property and Expands Real Estate Partnership with Holistic Industries
Business Wire
September 1, 2020
https://finance.yahoo.com/news/innovative-industrial-properties-acquires-michigan-214000505.html
IIP Expands Property Portfolio to 62 Properties in 16 States Comprising Over 4.7 Million Square Feet
Innovative Industrial Properties, Inc. (IIP), the first and only real estate company on the New York Stock Exchange (NYSE: IIPR) focused on the regulated U.S. cannabis industry, announced today that it closed on the acquisition of a property located at 29600 Stephenson Highway in Madison Heights, Michigan.
The purchase price for the property was $6.2 million (excluding transaction costs). Concurrent with the closing of the purchase, IIP entered into a long-term, triple-net lease agreement with a subsidiary of Holistic Industries Inc. ("Holistic"), which intends to operate the property as a regulated cannabis cultivation, processing and dispensing facility, upon completion of development of an approximately 63,000 square foot industrial building. In connection with the development of the property, IIP has agreed to provide reimbursement of up to $18.8 million. Assuming full reimbursement for the development of the property, IIP’s total investment in the property will be $25.0 million.
In addition to the Michigan property, IIP owns and leases to Holistic three other properties in Maryland, Massachusetts and Pennsylvania.
As the pioneering real estate investment trust (REIT) for the medical-use cannabis industry, IIP partners with experienced medical-use cannabis operators and serves as a source of capital by acquiring and leasing back their real estate assets, in addition to offering other creative real estate-based capital solutions.
"We have had the privilege of being Holistic’s long-term real estate partner since 2017, and supporting them in their expansion over the years with key growth capital along the way," said Paul Smithers, President and Chief Executive Officer of IIP. "Josh and his team of dedicated professionals have set a standard for product quality, patient care and customer experience that we are proud to support, and we are thrilled for the success that they have achieved."
Holistic is one of the largest private, vertically-integrated multi-state operators in the cannabis industry, with operations in California, Maryland, Massachusetts, Michigan, Pennsylvania and Washington D.C. Founded by Chief Executive Officer Josh Genderson in 2011, Holistic’s success is driven by its unique and scalable approach and mission to be the best place to work, shop and invest in the cannabis industry. Holistic is dedicated to delivering exceptional cannabis products to patients and customers in an environment of highly focused customer service and individualized patient care.
"IIP has been an excellent real estate partner, and we appreciate their unwaivering support in facilitating our expansion over the past three-plus years," said Josh Genderson, Chief Executive Officer of Holistic. "We look forward to working closely with IIP in the development of this property and the vision we have for the community, creating a state-of-the-art facility that produces the high quality, consistent product, with a compassionate, customer-focused experience for our patients and customers, and an operation that provides great jobs and opportunities for career advancement for local residents."
According to a Michigan Marijuana Regulatory Agency report, July 2020 total sales for medical-use and adult-use cannabis were approximately $109.6 million, equating to approximately $1.3 billion in sales on an annualized basis and representing a continued strong, month-to-month growth. Michigan began regulated adult-use cannabis sales in December of last year. As of today, IIP’s total investment, including committed funding for future tenant improvements, for the properties IIP owns in Michigan is approximately $155.8 million.
As of September 1, 2020, IIP owned 62 properties located in Arizona, California, Colorado, Florida, Illinois, Maryland, Massachusetts, Michigan, Minnesota, New Jersey, New York, Nevada, North Dakota, Ohio, Pennsylvania and Virginia, totaling approximately 4.7 million rentable square feet (including approximately 1.7 million rentable square feet under development/redevelopment), which were 99.3% leased (based on square footage) with a weighted-average remaining lease term of approximately 16.0 years. As of September 1, 2020, IIP had invested approximately $844.8 million in the aggregate (excluding transaction costs) and had committed an additional approximately $245.9 million to reimburse certain tenants and sellers for completion of construction and tenant improvements at IIP’s properties. These statistics do not include up to approximately $14.5 million that may be funded in the future pursuant to IIP’s lease with a tenant at one of IIP’s Massachusetts properties, as the tenant at that property may not elect to have IIP disburse those funds to the tenant and pay IIP the corresponding base rent on those funds. These statistics also treat IIP’s Los Angeles, California property as not leased, due to the tenant being in receivership and its ongoing default in its obligation to pay rent at that location.
About Innovative Industrial Properties
Innovative Industrial Properties, Inc. is a self-advised Maryland corporation focused on the acquisition, ownership and management of specialized industrial properties leased to experienced, state-licensed operators for their regulated medical-use cannabis facilities. Innovative Industrial Properties, Inc. has elected to be taxed as a real estate investment trust, commencing with the year ended December 31, 2017. Additional information is available at www.innovativeindustrialproperties.com.
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>>> Prologis Releases Updated "Future Flow of Goods" Economic Impact Report
PR Newswire
August 13, 2020
https://finance.yahoo.com/news/prologis-releases-updated-future-flow-130000739.html
In-depth analysis examines how the company's business operations contribute directly to the global economy
SAN FRANCISCO, Aug. 13, 2020 /PRNewswire/ -- Prologis, Inc. (NYSE: PLD), the global leader in logistics real estate, today released a new report that summarizes the economic impact of its worldwide operations.
Prologis commissioned independent advisory firm Oxford Economics to update the company's "Future Flow of Goods" study, first conducted in 2017. The revised report reveals Prologis' growth amidst changes in the logistics real estate landscape.
"This study shows just how critical logistics real estate is to the vitality of the global economy," said Prologis chairman and CEO Hamid R. Moghadam. "Every day, Prologis sees many of the goods that make modern life possible flow through our distribution centers, which in turn underscores the interconnected nature of global trade."
Key insights from the new study include the following:
The current economic value of goods flowing through Prologis facilities worldwide is $2.2 trillion, a 69% increase over 2017.1 This figure underscores the diversity of the Prologis customer base and the scale and value of the company's global real estate portfolio.
This $2.2 trillion in throughput represents 3.5% of the gross domestic product (GDP) of the 19 countries in which Prologis operates. In 2017, the company's portfolio spanned 684 million square feet, and throughput represented 2.4% of the GDP of those same 19 countries.2 The increase speaks to Prologis' growth strategy and the scale of its platform, which comprises nearly 1 billion square feet today.
The flow of goods through Prologis buildings represents 2.5% of global GDP—4.4% of global household consumption.2 In 2017, the flow of goods was 1.7% of global GDP.
Prologis is a powerful supporter of jobs in its communities; each day, approximately 850,000 people go to work under Prologis roofs, a 57.4% increase over 2017.3
Visit https://www.prologis.com/about/economic-impact-report to view and download the full report.
1 Based on 2019 data per Oxford Economics report
2 Per Oxford Economics, it is important to note that GDP represents the total value of all final goods and services production. Some warehouses may be used to store intermediate goods (i.e. components used in the production of final goods), and of course services do not need to be stored, and a single good will often be stored in multiple warehouses on its way to final consumers.
3 Based on estimates available in 2017, Oxford Economics assumed that direct employment at Prologis warehouses would be one worker for every 743 square feet (69 square meters) of warehouse space globally. Subsequent research by Prologis has refined this estimate and resulted in the country-specific estimates of 1,000-1,900 square feet per direct employee. Based on the original assumption, we estimated total direct employment of 816,200 workers in Prologis warehouses in July 2017. Updating the previous assumption, however, Oxford Economics would estimate total employment in Prologis warehouses in 2017 of 539,900.
ABOUT PROLOGIS
Prologis, Inc. is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of June 30, 2020, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 963 million square feet (89 million square meters) in 19 countries. Prologis leases modern logistics facilities to a diverse base of approximately 5,500 customers principally across two major categories: business-to-business and retail/online fulfillment.
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Equinix - >>> Why the Coronavirus Has Helped Equinix's Results
Remote working increases the demand for data.
Motley Fool
Brent Nyitray, CFA
Aug 12, 2020
https://www.fool.com/investing/2020/08/12/why-the-coronavirus-has-helped-equinixs-results/
One of the biggest revelations out of the coronavirus crisis has been how easily many white-collar businesses have been able to adapt to remote working. Just about every company that has reported second-quarter earnings has remarked that the transition to mass remote-working has gone well. Tech leaders like Google and Facebook have permitted employees to work remotely for the next year if they prefer.
Remote working vastly increases the demand for data, cloud storage and access, as well as bandwidth. That's why it's a good time to consider Equinix (NASDAQ:EQIX). Equinix is a real estate investment trust that dominates the data center space, and it's one of the few REITs that can satisfy both growth and income investors.
A record quarter for the Americas
Equinix put in another solid quarter recently and announced record bookings for the Americas. On the second-quarter earnings conference call, CEO Charles Myers said that the company had its third highest bookings for the Americas and signed on 4,200 new deals with 3,000 new customers. Equinix's customers are giants like Verizon and Oracle. Internet exchange traffic was up 44% year over year, driven by COVID-related videoconferencing as well as gaming. While COVID has inhibited decision-making at some customers (the company pegged the revenue effect to be up to $50 million), the increases in traffic and bookings demonstrate how remote working is driving demand for data and cloud storage.
Steady growth and guidance
During the quarter, Equinix reported a 2% sequential increase in revenue to $1.47 billion and an 11% increase in operating income to $282 million. Adjusted funds from operations (AFFO) increased 2% sequentially to $6.35 per share. AFFO is a better way to look at a REIT's cash flow than net income. REITs with a lot of real estate generally have a lot of depreciation, which is a non-cash expense. AFFO takes that into account.
The company also gave full-year guidance for $5.9 billion to $6 billion in revenue, which is a 6% to 8% increase from 2019. Full-year AFFO guidance is $23.87 to $24.67 per share, an increase of 5% to 8% from last year.
Continuing to invest in the business
During the quarter, Equinix continued to make investments, buying 25 data centers from Bell Canada (including 600 customers) for $750 million. This helps Equinix develop a truly national platform in Canada. Overall, Equinix completed 4,200 deals with 3,000 customers. And it opened its 5G and Edge Proof of Concept Center (POCC), which provides a testing environment for mobile network operators (MNOs), cloud platforms, technology vendors, and enterprises.
An opportunistic refinancing
Equinix was upgraded by Moody's from Ba1 to Baa3 during the quarter, and the company took advantage of that to refinance some existing high-yield debt at an average rate of 2.07%. In addition, the company issued $1.7 billion of common stock to fund further growth. It turns out that the interest savings from the refinancing covered the dilution from the equity raise. This leaves Equinix with about $5 billion of cash and about $12 billion in mortgage debt and senior notes. Last year, Equinix had about $3.6 billion in maturing obligations this year, but should be able to refinance these at lower interest rates. The $5 billion in cash alone can handle it.
Sometimes investors have to pay up for a leader
For a REIT, Equinix pays a somewhat miserly dividend of only 1.4%. For investors used to retail or mortgage REITs, this is quite small. The company also trades at a pricey 32 times guided AFFO per share as of Wednesday morning. That said, Equinix dominates its space unlike any other REIT. Its interconnection growth outstrips the next 10 competitors combined. The stock has been a stellar performer, rising 32% year to date. Sometimes investors have to pay up for industry leaders, and Equinix certainly fits that bill.
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>>> Equinix Eyes Expansion in India With GPX India Acquisition
Zacks
August 12, 2020
https://finance.yahoo.com/news/equinix-eyes-expansion-india-gpx-125112637.html
Equinix, Inc. EQIX extended Platform Equinix to India, with the $161-million acquisition of GPX Global Systems, Inc.’s Indian operations — GPX India — consisting of two highly-interconnected data centers.
The transaction value indicates a multiple of nearly 15X the estimated EBITDA at full utilization. Moreover, this all-cash deal is anticipated to close in first-quarter 2021, subject to customary closing norms, including regulatory approval.
Through the acquisition, Equinix will add a fiber-connected campus, consisting of two data centers located in Mumbai. The campus has more than 1,350 cabinets, with a provision to add another 500 cabinets at full build-out. At full built, the campus will add more than 90,000 square feet of colocation space to Platform Equinix.
Moreover, the strategic location of the data centers in Mumbai will likely enable the company to enjoy robust demand and leasing activity. This is because the city is a domain for important IT infrastructure of numerous global companies and has international connectivity serviced by subsea cables at close landing sites.
Per management, core digital sectors in India like IT and digital communication services are estimated to double in size by 2025 and will account for $355-$435 billion to GDP. Hence, given this massive proliferation of digitization in the country, the buyout is a strategic fit.
It will provide a platform for Equinix’s existing network, content, cloud and enterprise customers that are looking to expand in the dynamic market. The expansion will aid local companies to advance digital transformations by deploying their infrastructures, applications and services closer to the edge on the back of Equinix’s global-interconnected platform of more than 210 International Business Exchange data centers.
Over the past year, shares of this Zacks Rank #3 (Hold) company have gained 38.2% as against the real estate market’s decline of 11.1%.
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>>> Digital Realty Adds Renewable Energy, Expands Colocation Capacity in Dallas Portfolio
PR Newswire
August 24, 2020
https://finance.yahoo.com/news/digital-realty-adds-renewable-energy-103000186.html
Phoenix Solar Project Builds on Track Record for Sustainability, and Supports Customer Expansion on PlatformDIGITAL™ in Key U.S. Metro
SAN FRANCISCO, Aug. 24, 2020 /PRNewswire/ -- Digital Realty (NYSE: DLR), a leading global provider of carrier- and cloud-neutral data center, colocation and interconnection solutions, announced today it is expanding its renewable energy capacity in Texas with a new long-term power purchase agreement to source solar power for the company's Dallas-area data center portfolio from Pattern Energy's 82.5 MWac Phoenix Solar Project located in Fannin County, Texas. The company also announced that 2323 Bryan Street, a major regional connectivity hub in downtown Dallas, is being upgraded to meet the area's growing networking needs with additional colocation capacity.
Digital Realty contracted 78% of the project's total capacity, approximately 65 MWac, with the remainder held by Pattern Energy Group LP, the project developer and owner. With the addition of this solar project, Digital Realty's entire Greater Dallas portfolio will be powered by 70% renewable energy once the Phoenix Solar project reaches commercial operation by mid-2021. This agreement marks the latest milestone in Digital Realty's continued focus on reducing its carbon footprint, in line with the Science Based Targets Initiative.
"This is our third major renewable energy transaction in Texas since 2016," said Digital Realty Senior Director of Sustainability Aaron Binkley. "We are pleased to be able to expand access to renewable energy for our customers while making additional progress towards our Science Based Target Initiative carbon emissions reduction commitment. The Phoenix Solar Project supplies renewable energy at scale in proximity to our Dallas data centers, expanding on our ongoing efforts to enhance local sustainable business practices across our global portfolio."
Phoenix Solar expands Digital Realty's use of renewables by approximately 160,000 megawatt-hours per year. This announcement builds on the significant wind energy project the company announced in April of this year, which added a total of 262,800 megawatt-hours of new clean energy to the regional electric grid. In total, these projects are expected to generate enough electricity to meet the needs of 50,000 homes each year.
Digital Realty is expanding its use of renewable energy in Texas in lockstep with its investment in new capacity in the region. With its rich technology landscape, rapidly growing job market and reputation as the energy capital of the U.S., Texas has emerged as an epicenter for business activity and technology growth. To meet the region's expanding network demands, Digital Realty is adding colocation capacity at its 2323 Bryan Street facility.
With more than 75 carriers in the Digital Dallas ecosystem, the new downtown colocation capacity provides an ideal location for customers to deploy Network Hub solutions on PlatformDIGITAL™, with availability to expand global cloud and connectivity options via Metro Connect, Service Exchange and dedicated cloud connections such as IBM Direct Link.
"Technology providers are increasingly attracted to the Dallas area's business-friendly environment and strong tech talent pool, which is fueled by leading research institutions in the region," said Tony Bishop, Digital Realty Senior Vice President, Platform, Growth & Marketing. "As a result, the gravitational pull of the Dallas market is encouraging more enterprises to locate their infrastructure and applications in close proximity to our highly-connected centers of data exchange. We're excited to be adding new, sustainable energy solutions for our customers in the region alongside today's significant milestone of expanding our colocation options and service offerings on PlatformDIGITAL at the very heart of our Dallas portfolio."
In addition to its use of renewable energy, Digital Realty continues to advance its water stewardship and energy efficiency initiatives, including a recent partnership with Nalco Water to optimize data center water use. This effort was recently recognized as a Top Project of the Year by the Environment + Energy Leader Awards. At its 1100 Space Park Drive, SJC10 facility in Santa Clara, Digital Realty is conserving water in partnership with the South Bay Water Recycling Program, investing in infrastructure that will supply an estimated 10 million gallons of non-potable, reclaimed water annually to reduce the impact on the Silicon Valley watershed.
Learn more about Digital Realty's work with Citi and EDF to supply clean energy to its Dallas, Texas data centers in recent announcements
Discover new connectivity options for customers in the Digital Dallas campus with Windstream Wholesale
For more information on Pattern Energy's solar project, please visit: phoenixsolartexas.com
More information on Digital Realty's work with Nalco Water is available here.
About Digital Realty
Digital Realty supports the data center, colocation and interconnection strategies of customers across the Americas, EMEA and APAC, ranging from cloud and information technology services, communications and social networking to financial services, manufacturing, energy, healthcare and consumer products. To learn more about Digital Realty, please visit digitalrealty.com or follow us on LinkedIn and Twitter.
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Prologis - >>> Logistical Cashflows for Income & Growth
InvestorPlace
by Neil George
August 14, 2020
https://finance.yahoo.com/news/logistical-cashflows-income-growth-151318505.html
Retail stores are closing on a daily basis as online retail rapidly becomes the way to shop.
Pure online retail sales have climbed 103.3% in the trailing five years alone, using US Census data. Add in traditional retail moving online, and overall online sales will move higher at an increasing pace.
This means all of the industries and companies behind the scenes of this commerce are on a long-term roll.
Warehouses and logistics are the backbone beyond the websites, cloud services and data centers. After all, somebody has to store, process and deliver that mountain of goods. Here’s a way to cash in now, with plenty of income and growth to follow.
A Pro at Problem-Solutions
Prologis (NYSE:PLD) is one of the largest warehousing and logistics support companies in the US and around the major economies of the globe. It has 4,655 buildings amounting to 963 million square feet (MSF) of warehouse and related facilities.
Its occupancy is currently running at 95.7%, and it’s expanding its capacities with eager tenants. It added new facilities in the second quarter and expanded and locked-in tenants at others. Its commenced new construction on additional facilities that are 100% pre-leased and committed with more in the works.
Like other real estate investment trusts (REITs), it has some stressed tenants, but that only amounts to 0.5% of its overall rents. And rent collection continues to rebound strongly, hitting 98%.
The company calculates that $2.2 trillion worth of goods flow through its facilities on an annual basis. And in the countries where it operates, the goods and services running through amount to 3.5% of those nations’ gross domestic products (GDPs). That equates to 2.5% of the globe’s overall economy.
Its top customers leasing properties are a “who’s who” in logistics and commerce. They include Amazon (NASDAQ:AMZN), DHL Worldwide Express, FedEx (NYSE:FDX), UPS (NYSE:UPS) and XPO Logistics (NYSE:XPO).
Home Depot (NYSE:HD) wouldn’t have its depot without Prologis. And it even has some data centers for its customers Amazon, Microsoft (NASDAQ:MSFT) and others.
A Pro at Income & Growth
Revenue at Prologis is up over the trailing year by 18.8%. And that includes the highly challenging first and second quarters of this year, complete with remote work, stay at home and all of the lockdowns and cross-border limits.
But that isn’t just a one-off good year. Revenues continue to climb by an average of 17.8% on a compound annual growth rate (CAGR) basis for the past five years.
The company runs a profitable ship with low general and administrative expenses. And that in turn has driven a return on funds from operations (FFO) of 11%.
Prologis continues to expand its assets with eager and confirmed pending tenants. This means that the intrinsic (book) value of the company, currently sitting at $46.66 per share, should continue to increase. Over the past five years alone, the intrinsic value of the company has continued to climb at a 10% CAGR.
PLD has returned 192.2% over the past five years, which is way above the S&P 500’s return of 79.7% and the S&P Real Estate Index’s return of 36%.
But the stock is still a value. It’s only valued at 2.3 times its intrinsic (book) value. This is far cheaper than the average S&P Real Estate Index member, which is running at 3.3 times book.
A Pro at Paying Out
Prologis continues to pay a reasonable dividend distribution that currently yields 2.3%. That’s on the lower side, but it has been on the rise over the past five years by 10% annually.
Its retention of cash is fueling its expansion, which in turn is resulting in that continued rise in underlying intrinsic value.
The stock market continues to acknowledge the company’s rising value and rising revenue with its outperformance relative to the sector and the general market. This all makes it a proven growth company with sturdy distributions for income investors.
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>>> Why Innovative Industrial Properties Is the Best REIT Pot Stock
A favorite REIT/pot stock in 2019 is working wonders in 2020.
Motley Fool
by Sushree Mohanty
Jun 24, 2020
https://www.fool.com/investing/2020/06/24/why-innovative-industrial-properties-is-the-best-r.aspx
If you find it risky to invest directly in marijuana stocks, this real estate investment trust (REIT) might interest you. Innovative Industrial Properties (NYSE:IIPR) is an unconventional marijuana stock -- it's a REIT that provides real estate solutions to medical cannabis companies in the U.S.
Exceptional revenue growth through acquisitions
While most cannabis companies took a hard hit in 2019, Innovative Industrial Properties saw its stock rise by about 65% . The popularity of medical cannabis businesses in the U.S. is driving this revenue growth.
Acquisitions were the main contributor to revenue growth. As of May 6, the company is the proud owner of 55 properties with about 4.1 million rentable square feet in various U.S. states. In 2020 alone, Innovative Industrial Properties has acquired nine properties that total about 1.1 million rentable square feet. The locations include Colorado, Florida, Illinois, Massachusetts, Michigan, Ohio, and Virginia. Innovative acquires these properties, then leases them out to mostly medical cannabis companies (which can have trouble getting funding to purchase them on their own), thereby earning a chunk of rental revenue.
Its recent fiscal 2020 first quarter showed a drastic 210% increase in revenue to $21.1 million from the year-ago quarter.
Added benefits: A dividend stock
Besides offering unconventional access to the marijuana sector, this company pays dividends -- an added benefit to investors.
REIT stocks are well-known for being shareholder-friendly, paying 90% of their net profits as dividends. Innovative has an attractive forward dividend yield of 4.3%. That said, a high yield isn't everything -- consistency in dividend payments determines how stable the companies' financials are. Innovative has been consistently paying dividends since 2017 amid the market's ups and downs.
It hiked its quarterly dividend by 122% year-over-year in the first quarter, to $1 per share. Management noted the rise in rental revenue, net income, and adjusted funds from operations (AFFO) as the drivers behind the dividend increase.
Usually, with a REIT, we look at funds from operations (FFO) and AFFO, which paint a picture of its operating performance and give us an idea of how much cash is available to be paid out as dividends. Innovative saw a 236% increase in AFFO, to $17.8 million, and a 249% increase in net income to $11.5 million in the first quarter.
The company's commitment to providing value to shareholders is evident from its dividend hikes. In the second quarter, management raised the dividend by 6% from Q1, to $1.06 -- which is also an increase of 77% from the year-ago period. This marks the seventh increase since the company went public in December 2016.
Medical cannabis has tremendous potential
What makes me support Innovative is its potential to grow through investments in the medical cannabis business. Compared with the recreational front, medical marijuana is a more stable and growing source of income. The medical segment held 71% of total worldwide legal cannabis revenue share in 2019 -- and if estimates by Grand View Research prove right, the global legal marijuana market could be worth $73.6 billion by 2027.
The market for medical cannabis is also vast in the U.S., where 33 states and the District of Columbia have legalized it -- whereas recreational cannabis is legal only in 11 states and D.C. Many more states are gearing up to make cannabis legal this year, opening doors of opportunity for this REIT. Innovative's shares are up 26% so far in 2020, while the SPDR S&P 500 ETF has lost 4.1%.
Innovative also ended the quarter with $108.3 million in cash and cash equivalents. Discussing the first-quarter results and COVID-19 crisis, management noted in a press release that "one of the pillars of our business strategy has consistently been a conservative, flexible balance sheet, and we believe we are exceptionally well-positioned to not only weather this unprecedented health crisis and economic disruption but to continue to make real estate investments on a long-term basis with best-in-class tenant operators."
It is a well-known fact that dividend payers can be the best stocks to own during an economic storm -- like the one we are facing right now because of the COVID-19 pandemic. This REIT/pot stock allows you to be a part of the evolving marijuana sector and also offers stability and potential for long-term growth. That said, if you are interested in waiting and enjoying the full potential of the evolving cannabis industry, then I believe Cronos Group (NASDAQ:CRON) and Aphria (NASDAQ:APHA) are better positioned for 2020. They have strong balance sheets, innovative cannabis derivative products, and wise strategies for the future.
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>>> Tech-Exposed Real Estate Is Pulling Away From Other Properties
Bloomberg
Jennifer Bissell-Linsk
June 25, 2020
https://finance.yahoo.com/news/tech-exposed-real-estate-pulling-154740149.html
(Bloomberg) -- The same trends behind soaring stock prices for Amazon.com Inc. and Zoom Video Communications Inc. are benefiting shares in the companies associated with their real estate.
Communication towers and data center stocks -- sometimes referred to as “where the internet lives” -- have seen some of the biggest gains in the S&P 500 so far this year as stay-in-place measures to combat the coronavirus have accelerated the demand for digital services and connectivity.
Whereas the pandemic has severely hit many commercial property owners, shares in real estate investment trusts related to technology are outperforming. The combined market value gained by just five of those stocks is almost the same as the amount lost by 30 REITs specializing in malls and shopping centers, according to data compiled by Bloomberg News.
“If you’re a real estate investor and your mandate is to own real estate, you’re obviously not doing very well owning offices or owning retail,” Cowen analyst Colby Synesael said in a phone interview.
With more people at home, the demands on technology and its infrastructure have been tremendous, whether it’s allowing for online shopping, mobile streaming or working remotely. As a result, certain REITs have emerged as defensive plays for investors, Synesael said.
American Tower Corp., Digital Reality Trust Inc., Equinix Inc., Crown Castle International Inc. and SBA Communications Corp. have added roughly $50 billion in total market capitalization this year, and valuations for towers and data centers have never been higher.
Data centers, for instance, are trading at a roughly 15% premium to the overall REIT average on a price to estimated adjusted funds from operations basis, according to Berenberg analyst Nate Crossett. Historically they’ve traded at a 7% discount.
As a global data center company, Equinix has boasted of its work building out coverage and scale for clients that have gone on to become household names in the work-from-home era including Zoom and Cisco Systems Inc.’s Webex.
“Two significant customers of ours is Zoom and Webex -- both of whom obviously saw exceptional increases in their demand as work from home took off,” Chief Executive Officer Charles Meyers said in an interview. “We played a very key role in helping them ramp up their capacity to meet that demand. That was true also in networking cloud providers.”
Meyers said it’s difficult to anticipate how much more revenue the company could see over time. In terms of demand, he pointed to recent overall online traffic trends, which surged 25% to 30% over a 30- to 45-day period-- growth that normally would take nine months to a year to achieve.
Digital Realty Chief Financial Officer Andy Power said in an interview that the company had seen a pickup in data center demand from clients filling near-term gaps but that longer-term, he was “pleasantly surprised” at how larger enterprises were also taking this moment to plan for the future.
“We’re seeing the criticality of our infrastructure playing out front and center while many of our other asset classes [in real estate] are seeing sloping rent,” he said. Even for clients in struggling industries such as travel, the company has seen increased deployments. “Our services are fundamentally mission critical for their businesses. You cannot book an airline ticket or any hotel reservation without the infrastructure we’re essentially providing.”
Bloomberg Intelligence analyst Lindsay Dutch said the need for increased connectivity during the pandemic has demonstrated the importance of digital infrastructure, which is a long-term driver for the stocks.
“If you think of everyone on their computers, trying to connect to their workplace and do all these Zoom calls and stream Netflix -- that creates more traffic and the need for power,” she said.
Before the virus, shares in tech-related REITs had already been rising, catching the attention of investors, Cowen’s Synesael said.
For communication towers, he noted a sea change in 2018 when Vanguard Group began adding towers to its investment portfolio, prompting more investors to do the same ahead of the U.S. rollout of 5G spectrum.
Unlike data centers, tower stocks aren’t seeing a fundamental change in earnings from the pandemic, Synesael said. However, they are still benefiting from trends Covid-19 has accelerated like mobile data use, which Synesael expects to continue.
Despite their relative premium, Berenberg’s Crossett said that on an absolute basis “there’s still plenty of room to run” for data center stocks.
“To the extent that there’s a pullback, I would be adding to these names,” he said.
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>>> Equinix Unveils New Data Center in Dallas Infomart Campus
Zacks
June 25, 2020
https://finance.yahoo.com/news/equinix-unveils-data-center-dallas-130701060.html
Equinix, Inc. EQIX added a new International Business Exchange (“IBX”) data center in the Dallas Infomart Data Center campus.
The $142-million data center is the 9th one for the company in the Dallas metro area and the 2nd building on the growing Dallas Infomart campus. Moreover, with this new data center addition, it expanded the footprint in the Americas — operating more than 90 IBX data centers across Brazil, Canada, Colombia, Mexico and the United States.
The initial phase of DA11 offers a capacity of 1,975 cabinets and a colocation space of around 72,000 square feet. Upon the completion of the future phases, the facility is anticipated to provide a capacity of more than 3,850 cabinets and colocation space, exceeding 144,000 square feet.
The company also launched its 5G and Edge Proof of Concept Center (POCC) at the state-of-the-art data center. Notably, Dallas serves as a core communications market for the Southern United States, with a concentration of telecommunications companies, many of which are part of Equinix’s dense and diverse ecosystem of carriers, clouds, and enterprises. Hence, launching POCC and 5G at the new data center is a strategic fit, since companies are on the lookout to test new 5G and edge innovations.
In fact, Equinix 5G and Edge POCC will accelerate 5G strategies of companies by offering a 5G and edge "sandbox" scenario. This will facilitate mobile network operators, technology vendors, cloud platforms and enterprises to directly connect with Platform Equinix to demonstrate complex 5G and edge deployment structures.
Being an important multi-tenant data center market in the United States, management expects Dallas to continue witnessing significant demand. Hence, with the opening of DA11, the company is positioned to leverage on the demand for connectivity and interconnection to its rich ecosystem of carriers, network and cloud providers.
Further, the new data center will help companies to accelerate their transformation from traditional to digital businesses by speedily scaling infrastructures, easily adopting hybrid multicloud architectures and interconnecting with potential business partners from the global ecosystem provided by Platform Equinix.
Although the expansion of the data-center portfolio is a strategic fit, it requires huge capital outlays and given the company’s significant debt obligations, these capital-intensive activities are concerning.
Moreover, shares of this Zacks Rank #3 (Hold) company have jumped 40.6% over the past year against the real estate market’s decline of 10.8%.
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Innovative Industrial Properties - >>> 3 Recession-Proof Stocks to Buy Now
These companies will likely prosper in almost any economic environment.
Motley Fool
Will Healy
Jun 7, 2020
https://www.fool.com/investing/2020/06/07/3-recession-proof-stocks-to-buy-now.aspx
The COVID-19 pandemic stoked deep fears about how the economy would cope with the shutdowns required to get the disease under control. Consequently, stocks sold off in February and March as job losses and closures escalated.
However, investors often forget that some companies can prosper, even in harsh conditions, and may actually perform better when a recession occurs.
For those who don't forget, the recent crisis may a reason to reassess their stock portfolio and add some companies that can generate positive returns regardless of the state of the broader economy. Companies like Dollar Tree (NASDAQ:DLTR), Innovative Industrial Properties (NYSE:IIPR), and Verizon (NYSE:VZ) appear to match that description.
1. Dollar Tree
The Dollar Tree empire is made up of two extreme discounters. The company originally established the Dollar Tree line of stores, which sells most of its items at the $1 price point and the rest under $1. It later acquired Family Dollar. While Family Dollar stores also sells $1 and under items, they don't operate under the price limit of its sister brand.
Dollar Tree stock took a hit when it acquired Family Dollar in 2015. A failure to integrate the new brand into the broader company led to stock volatility, forced Family Dollar conversions to Dollar Tree stores, and occasional outright closures. This placed its most direct competitor, Dollar General (NYSE:DG), in a more favorable light as an alternative investment.
But with the COVID-19 crisis and the recessionary indicators that came with it Family Dollar stores ended up getting a performance boost. Many of the millions of newly unemployed were looking for ways to save money in trying times and were drawn to stores like Family Dollar. Dollar Tree stores also partially benefited, but supply chain issues with China, as well as a lack of Easter holiday sales due to the coronavirus outbreak, created lower sales overall.
Still, with supply chains realigning and millions still unemployed, shoppers will likely continue to frequent both stores.
Dollar Tree stock declined in February along with the broader market. But surging revenue from Family Dollar (which, along with Dollar Tree, were deemed essential businesses and remained open) has helped the company's stock recover its value and it is trading up for 2020. Dollar Tree stock trades at about 20 times forward earnings, which suggests the stock is trading at a premium. But analysts expect average annual profit increases of approximately 7% per year over the next five years.
Dollar Tree may continue to face challenges with Chinese suppliers and integrating Family Dollar into the fold. But with recessionary unemployment rates likely to persist for the foreseeable future, the company's brands should continue to be popular with consumers and with investors.
2. Innovative Industrial Properties
Innovative Industrial Properties allows investors in the marijuana industry to benefit in two ways. First, marijuana companies are a trending investment sector at the moment and are considered one of the few recession-proof sectors of the market. Second, while marijuana growers are still considered risky investments, a real estate investment trust (REIT) which rents property to cannabis growers has some insulation from the risks inherent in the industry. Being a REIT also somewhat shields the company from the excessive regulations associated with marijuana growers and allows Innovative Industrial to earn a profit and pay a dividend while many grower stocks are losing money and not rewarding shareholders.
Over the last year, Innovative Industrial has benefited from two key trends. One trend involves small start-ups selling their production properties to generate ready cash flow needed to operate and then leasing the property back immediately from the company they sold it to (in this case, Innovative Industries). The second trend is a change in legislation. Where previous laws limited the Innovative Industries' reach to states that had legalized medical or recreational cannabis, now federal hemp production legalization means the company can operate properties in all 50 states.
Because the potential is still not being realized for this industry, this stock trades at a forward P/E of 23.4, meaning it seels at a premium. But this appears reasonable considering that analysts predict earnings increases of 78.8% this year and 37.2% in fiscal 2021.
As a REIT, Innovative Industrial Properties must pay out at least 90% of net income to its shareholders. The company has not disappointed in that regard and its $4 per-share dividend payout yields about 4.6%. This dividend has also increased every year since Innovative Industrial paid its first dividend in 2017.
Grandview Research forecasts a compound annual growth rate for the global cannabis industry of 18.1% through 2027. This should ensure that the company will continue to attract tenants.
As hemp grows more popular and as more jurisdictions loosen restrictions on marijuana use, demand for properties like the type owned by Innovative Industrial should continue to surge.
3. Verizon
Verizon has struggled somewhat recently as declining margins in its wireless business and massive investments in 5G infrastructure weighed on the company. Last year alone, Verizon spent $17.9 billion on capital expenditures. This has contributed to the company's $106.56 billion long-term debt load. It also represents a significant burden for a company worth $61.65 billion after subtracting liabilities from assets.
Still, it does not have the much higher debt load and side business distractions of archrival AT&T (NYSE:T). Moreover, consumers need communication and internet connectivity in good times and bad. Even if the economy continues to struggle, the march to 5G will probably continue and the need for smartphones and internet connectivity will be there.
And Verizon has an investing advantage over its other big rival, T-Mobile (NASDAQ:TMUS), as Verizon's shareholders receive a dividend. Verizon paid out $2.46 per share last year and its payout yields about 4.3%. This payout has risen every year for more than a decade. The dividend claims about 51.7% of company profits, leaving plenty of free cash flow left over for infrastructure spending, debt paydown, dividend increases, and other investments.
This has left Verizon the growth-and-income play of the wireless industry. Verizon has risen by about 121% over the last 10 years. While that does not beat T-Mobile, it comes out well ahead of AT&T, which (with its dividend yield of about 6.6%) is primarily an income play.
In addition to a generous payout, the company sells for just 11.9 times forward earnings. Admittedly, some may sour on Verizon as analysts see profit growth averaging 1.9% per year over the next five years. Still, with 5G adoption expected to grow for years to come, Verizon should keep producing growth and income regardless of the broader economy's performance.
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American Tower - >>> 3 Stocks to Hold for the Next 20 Years
Investors need to look for companies with a track record of stability and resilience as key attributes.
Motley Fool
Royston Yang
May 21, 2020
Ideally, as an investor you should consider holding stocks over years, even decades. The magic of compounding will provide you with a substantial nest egg to enjoy your golden years, while a growing income stream from dividends provides a hedge against inflation. However, it's important not to buy and own the wrong companies. Doing so will result in poor or even negative returns and may destroy your capital over time.
So, what attributes do great companies have? They should have a strong competitive advantage, market share, and a high level of resilience. These attributes will allow them to weather crises over the years and yet emerge unscathed or even stronger. Companies with such attributes are usually large, with a long track record of growth and stellar financial performance. Size confers an advantage as it allows them to dominate the industry they are in and continue to lead the pack.
Here are three examples of stocks that you can hold for the next two decades.
Mastercard
Mastercard (NYSE:MA) is a market leader in the financial services and payments industry. The company acts as an intermediary between banks and end customers by providing a secure platform for transaction and payments processing. For the first quarter of the fiscal year 2020, the company processed a gross dollar volume of $1.56 trillion worth of transactions, up 8% year over year. The number of cards in circulation grew 5% year over year to 2.6 billion.
Mastercard is a market leader in cashless transactions. With more countries modernizing and shifting to paperless transactions, the future looks bright for the company despite the short-term effect of the COVID-19 pandemic. Because of the pandemic, the company has temporarily suspended its share repurchase program. Dividend per share has been maintained at $0.40 per quarter as the business continued to generate strong operating cash flow of $1.9 billion. With strong tailwinds for its business and a robust balance sheet, Mastercard is a company you can own for the long term without losing sleep.
Nike
Nike (NYSE:NKE) is a market leader in the design and manufacture of sports footwear and apparel. The company has retail stores located around the globe and reported growth in revenue and net income of 7% and 10% respectively for the first nine months of the fiscal year 2020.
Though Nike has had to temporarily close stores in China, North America, and other parts of the world due to COVID-19-related lockdowns, the company has managed to tap on its digital sales platform to sell its products. Digital sales were up 36% year over year during the quarter , and CEO John Donahoe has reiterated the company's commitment to invest in the Nike Direct online platform and the Nike app. Digital is the company's fastest-growing channel, and owned and partnered digital sales represent more than 20% of overall revenues.
Nike is also famous for its innovation in running shoes. A few months ago, the new Nike ZoomX Vaporfly NEXT% was touted as one of the best running shoes ever made, with people going so far as to claim it gives athletes an unfair mechanical advantage. The company has just devised a new self-lacing shoe called HyperAdapt 1.0 that electronically adjusts to the contours of your foot and offers style in addition to comfort.
Investors can rest assured that the company's innovative culture and loyal fan base make the company an attractive one to own for the long term.
American Tower
American Tower (NYSE:AMT) is an owner and operator of a portfolio of roughly 180,000 communication sites that are leased to wireless service providers and communication companies. The company is incorporated as a real estate investment trust and is mandated to pay out 90% of its annual taxable income as dividends.
Over the years, American Tower's dividend has grown impressively by around 22.8% per annum over the last seven years, from $0.90 per share in 2012 to $3.78 in 2019. The company has achieved this through acquisitions of cell towers in emerging markets and by increasing the number of tenants using the same tower (thereby improving the return on investment for each tower).
With the expected investment by telecommunication companies in the development of 5G network technology, American Tower can expect an extended period of solid growth. This catalyst can allow the company to grow for many more years, and investors can look forward to continually growing dividends.
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>>> 3 'Must-Know' Dangers Of REITs
Seeking Alpha
May 19, 2020
by Jussi Askola
https://seekingalpha.com/article/4347678-3-must-know-dangers-of-reits
REITs are very opportunistic right now, but risks also are on the rise.
Conflicts of interest, over-leverage and shaky fundamentals are the leading reasons for poor investment results.
We discuss how to identify red flags to avoid stepping on landmines.
Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Get started today »
After the recent market collapse, the REIT sector has become very opportunistic. Many companies are now priced at similar valuations as in 2008-2009 and offer generational buying opportunities for investors who know what they are doing.
REITs that commonly trade at 3%-4% dividend yields now pay 8%-12% and offer 100-200% upside in a future recovery.
With that said, risks also are on the rise and you need to be more selective than ever before. There exist ~200 REITs but only ~50 of them are worth buying, and just half of that, has passed our due diligence at High Yield Landlord:
Before you buy shares of a REIT, you should know all the dangers that could derail your investment. Investors commonly think of REITs as a homogeneous market with great similarities from one name to another. In reality, this is a stock picker's market with enormous disparities in market performance between even the closest peers. Consider the following example:
Plymouth (PLYM) and Prologis (PLD) are both industrial REITs. If you had invested in PLD, you would have earned a nice return over the past years. However, if you had picked PLYM instead, you would have earned nothing and be down quite significantly.
There are some real landmines out there and the REIT market can be very punishing to investors who do not perform good due diligence on the risk factors. Below we discuss three "must-know" dangers of REITs. Avoid those and you will save yourself a lot of headaches in the future.
Danger #1: External Management Agreement
The first thing that we analyze is the management team. We always ask ourselves:
How shareholder-friendly are they?
What are their motivations?
Do they have a competitive advantage?
If you cannot trust the management, then the rest of the story is meaningless. You don’t need to waste your time analyzing the portfolio, balance sheet and valuation if the management is conflicted.
Even when the shares appear to be dirt cheap, you should just stay away. A conflicted management always will find a way to steal from shareholders and underperform sooner or later.
How do you recognize a poorly managed REIT?
The easiest way to identify conflicts is to look at the management structure. Most importantly, REITs can be managed internally or externally:
The internal management structure is the favored option. In this case, the management team is hired as employees of the REIT and they receive a salary that's tied to some key performance metrics. If they don’t perform, they can be easily fired by the board of directors.
The external management structure is a source of much greater issues. In this case, the management is outsourced to an external company that receives fees for its services. The fee structure here creates conflicts because the managers will often be compensated for maximizing the size of the company and not for optimizing its performance. Moreover, the management agreement has a multi-year term which makes it very difficult to fire the manager in case of trouble.
Conflict of interest - NGO Financial Risk Management: Balancing ...
The manager then becomes more protective about its fees than anything else. As an example, Global Net Lease (GNL), an externally-managed REIT, recently adopted a poison pill to discourage a hostile takeover of the company. They claim that it's for the best interest of shareholders, when in reality, it's more in the interest of the manager who does not want to lose its fee income. Just take a look at its performance since the IPO. I'm not so sure that this management is in the shareholder’s best interest:
Other examples of externally managed REITs with significant conflicts of interest include: Office Properties Income (OPI), Service Properties Trust (SVC), Industrial Logistics Properties, and other RMR-managed entities (RMR). We would stay away from this type of REITs at all cost.
But exceptions exist. The management structure is a good first sign of potential conflicts, but it should not be a deal-breaker on its own.
As an example, NexPoint Residential (NXRT) is externally managed, and yet, it has a strong track record of shareholder-friendly management. The difference here is that the insider ownership is very high at 20% and the managers keep buying more shares on the open market. We are actually very bullish on this externally-managed REIT:
In conclusion, we would avoid 95% of externally-managed REITs. Most of them are poorly managed, and even despite trading at a deep discount to other REITs, they tend to underperform in the long run. Don’t let their high yield fool you. Most of them are not great opportunities.
Danger #2: Overleverage In Times Of Crisis
If there's anything to be learned from the 2008-2009 crisis, it's that a poorly-timed equity issuance can have disastrous long-term effects on the performance of a REIT.
Back then, many REITs were forced to issue equity at fire-sale prices because refinancing became impossible in the mid of the crisis. It was very dilutive and shareholders paid the price. You want to avoid this type of situation at all cost.
Today, the banking system is in much better shape and REIT balance sheets are stronger than ever before. However, there still exist some over-leveraged companies that are very close to violating debt covenants in this environment. Good examples today include the lower quality mall REITs: Washington Prime Group (WPG) and CBL & Associates Properties (CBL):
Both are priced for high risk of bankruptcy or a dilutive equity infusion in the near future. Malls were hit particularly hard by the recent crisis and the lower-quality properties will take longer to recover. Combine that with high leverage and you have a perfect mix for disaster.
Even if a REIT is very cheap, it does not mean that it will ever recover to former levels if it's forced to issue a ton of equity, diluting shareholders in the process. If you are going to invest in this type of overleveraged company, skip the common shares and go up the capital ladder.
As an example, Bluerock Residential Growth REIT (BRG) is an over-leveraged apartment REIT. The common shares are very risky and may suffer from the issuance of dilutive equity. However, its preferred shares (BRG.PD), are higher on the capital stack, offer good margin of safety, and yet, they trade at an 8.5% dividend yield and offer 20% upside to par. The risk to reward is stronger, in our opinion.
Danger #3: Deteriorating Long-Term Prospects
What's unique about this crisis is that people are forced to stay at home and avoid social contact. As a result, they are learning to work from home, shop online, and entertain themselves in new ways.
Retail, hospitality, and office property sectors are the most affected by this crisis and you need to be especially selective when investing in these REITs.
In the long run, we believe that the office sector is set to lose the most. Employers are noticing that they could save money on their office rent and that some employees may be even more productive at home.
With that said, not all office properties are created equal. As an example, a Class A skyscraper in the middle of Manhattan is probably better positioned than a class B low rise office building in a more rural area.
Companies lease space in urban skyscrapers not because they have to, but because it's valuable to their image when they bring clients to a prestigious property. Law, consulting, and investment firms won’t suddenly leave these properties. The demand is high and the supply is very restricted due to the location. Therefore, a company like SL Green (SLG) that specializes in trophy office properties is likely to do fairly well in the long run.
On the other hand, a lower-quality office REIT like City Office (CIO) is likely to suffer much more from decreasing demand and oversupply. The properties do not have the same location and prestige advantage to protect them. In fact, CIO already slashed its dividend by 36% and the impact of oversupply could be felt for many years to come.
Bottom Line
Most REITs are very cheap today, but not all of them are worth buying. You need to become very selective in this market to sort out of the worthwhile from the wobbly.
Most importantly, you should learn to identify REITs with (1) conflicted management teams, (2) over-leveraged balance sheets and (3) struggling assets. These are the three "must-know" dangers of REIT investing in 2020.
In every crisis, there are losers and winners. Astute investors made fortunes in 2008-2009 as REITs nearly tripled in the recovery:
Today is no different. We are again hit by serious crisis and opportunities are abundant. We believe that those investors who play their cards right are set for exceptional returns in the coming years.
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Prologis - >>> Opinion: Three dividend stocks of cash-flow-rich companies poised to thrive during this economic crisis
MarketWatch
By Philip van Doorn
5-9-20
https://www.marketwatch.com/story/three-dividend-stocks-of-cash-flow-rich-companies-poised-to-thrive-during-this-economic-crisis-2020-05-07?siteid=bigcharts&dist=bigcharts
Prologis PLD, -0.95% is a real-estate investment trust that develops, operates and leases warehouses and distribution centers, while also providing logistics services. Its top customer, with 17 million square feet of leased space (5.8% of “net effective rent”) at the end of 2019 was Amazon.com AMZN, +0.87%. Other large customers include Home Depot HD, +2.06%, FedEx FDX, -1.45%, United Parcel Service UPS, -0.72% and Walmart WMT, +2.04%.
The stock is down 1% this year and has a dividend yield of 2.64%. The company was included in this “early” list of S&P 500 companies that increased their quarterly sales the most from a year earlier, as most companies reported sales declines.
The continued transition to online retail has been a boon to Prologis, with the shares returning 160% over the past five years, compared with a 52% return for the S&P 500. Koontz believes “inventory building” will now be the “biggest driver” for Prologis over the long term, in light of all the shortages experienced in the U.S. since the coronavirus shutdown began in March.
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Prologis - >>> Warehouse Giant Seeing Insatiable Demand From Amazon, Walmart
Bloomberg
By Natalie Wong
May 5, 2020
https://www.bloomberg.com/news/articles/2020-05-05/warehouse-giant-seeing-insatiable-demand-from-amazon-walmart
Prologis Inc., the largest owner of warehouses in the U.S., is getting a boost as social-distancing pushes consumers deeper into the embrace of e-commerce.
Companies including Amazon.com Inc. and Walmart Inc. have an “almost insatiable” appetite for more warehouse space, Chief Executive Officer Hamid Moghadam said in an interview on Tuesday.
“We’re not seeing those guys slow down, they continue to be very active in making new deals,” Moghadam said. “The strong continue to be taking a lot of space.”
Prologis and Blackstone Group Inc. have gobbled up warehouses in recent years, betting in part that more and more shopping will move online. Still, e-commerce is a relatively a small piece of the warehouse business, which is more tightly tethered to the overall economy.
Even as the pandemic fuels job losses and batters the economy, the surge in online shopping, including for groceries, is keeping vacancy rates low at Prologis properties.
The company has grown rapidly through acquisitions, but Moghadam doesn’t see buying many opportunities amid the current turmoil.
“I don’t expect anywhere near the kind of opportunities that came in other cycles,” he said. “I don’t expect fire sales.”
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>>> Cell Tower REITs: 5G's True Killer App
Seeking Alpha
Apr. 22, 2019
https://seekingalpha.com/article/4255831-cell-tower-reits-5gs-true-killer-app
Summary
With 5G on the horizon, Cell Tower REITs have outperformed the broader real estate sector in each of the past four years. 5G technology will fundamentally disrupt the communications sector.
The true “killer app” for 5G will be fixed wireless broadband internet. Dense small cell networks will allow carriers to deliver fiber-like speeds without the last-mile wires into each home.
The technological limitations of 5G – notably the very small coverage area per antenna – mean that 5G small cell networks will complement, not replace, macro cell tower networks.
The Sprint/T-Mobile merger saga continues. Just when a deal appeared imminent, a new curveball emerges. We think that Sprint’s troubles are overstated and that no-deal outcome would benefit tower REITs.
Cell tower REITs continue to benefit from a favorable competitive positioning within the telecommunication sector. Concentrated ownership and strong demand have translated into substantial pricing power for cell tower operators.
This idea was discussed in more depth with members of my private investing community,iREIT on Alpha.
REIT Rankings: Cell Towers
In our REIT Rankings series, we introduce and update readers to each of the commercial and residential real estate sectors. We analyze REITs within the sectors based on both common and unique valuation metrics, presenting investors with numerous options that fit their own investing style and risk/return objectives. We update these rankings every quarter with new developments.
cell tower REIT overview
We encourage readers to follow our Seeking Alpha page (click "Follow" at the top) to continue to stay up to date on our REIT rankings, weekly recaps, and analysis on the REIT and broader real estate sector.
Cell Tower Sector Overview
Cell tower REITs comprise roughly 10% of the REIT ETFs (VNQ and IYR). Within the Hoya Capital Cell Tower REIT Index, we track the three cell tower REITs which account for roughly $160 billion in market value: American Tower (AMT), Crown Castle (CCI), and SBA Communications (SBAC). Cell tower REITs are on the "growth" side of the real estate spectrum and generally pay a low dividend yield but have achieved some of the highest internal and external growth rates across the real estate sector over the past decade. Investors seeking focused but diversified exposure to this sector should consider the Benchmark Data & Infrastructure Real Estate ETF (SRVR).
cell tower REITs
More than any other real estate sector, cell tower ownership is highly concentrated. Cell tower REITs own roughly 50-80% of the 100-150k investment-grade macro cell towers in the United States. For this reason, while cell towers may constitute only a tiny portion of total real estate asset value in the United States, they constitute a disproportionally high importance in the market capitalization-weighted investible real estate indexes and in fact, American Tower and Crown Castle are the two single largest REITs. Strong performance from cell tower REITs over the past two years have explained much of the underperformance of the traditional "core" real estate sectors.
cell tower REIT overview
Consumers want both speed and mobility, but because of the physics and economics of data transmission, there is often a tradeoff between the two. For pure speed and low-latency, a robust fiber-based or dense 5G small-cell network is ideal. This requires laying thousands of miles of underground cables and/or having hundreds of thousands of small-cell base stations using high-band spectrum. For pure mobility, a wide-reaching macro cellular network using high-powered transmitters at lower and farther-reaching spectrum is ideal. This requires having a network of macro towers, but each tower is capable of servicing tens of thousands of devices each, rather than several dozen or hundreds of customer per small-cell antenna.
cell tower networks
Since consumers need both speed and mobility and none of the players are able to fully satisfy both of these needs, a blend of different technologies- including macro cell networks- will continue to be used to meet the growing demand for data connectivity. It’s important to note that both AMT and SBAC have significant international operations, while CCI is a pure-play US operator. AMT and SBAC focus on the macro tower business, while CCI has made significant investments in fiber and small-cell networks in addition to their primary tower business.
Bull & Bear Thesis for Cell Tower REITs
Our research continues to indicate that macro cell towers provide the most economical mix of coverage and capacity, and recent challenges with dense small-cell network deployment have affirmed our belief that macro towers will continue to be the "hub" of next-generation networks for the foreseeable future. While communications technology does change very rapidly, it appears that the physical and economic limitations of the alternative technologies (low-orbit satellites, wide-spread small cell networks, and outdoor Wifi) are unlikely to abate anytime soon and the risk of technological obsolescence in the 5G-era is often overstated.
5G vs. 4G
Cell tower REITs continue to command strong competitive positioning in the telecommunications sector. Cell carriers sold off their tower assets beginning in the mid-2000s to de-lever their balance sheet and free-up capital to expand their networks. Supply growth is almost non-existent in the US as there are significant barriers to entry through the local permitting process. The relative scarcity of cell towers, combined with the absolute necessity of these towers for cell networks, has given these REITs substantial pricing power. While cell carriers have tried to make moves to establish leverage over tower owners by building or acquiring towers themselves, carriers have limited available capital to spend on these initiatives, especially in light of the capital-intensive 5G rollout.
bullish cell towers
The four-year run of strong performance, however, has pushed cell tower REIT valuations to elevated levels compared with the rest of the real estate sector. The land under cell towers, of course, is worth very little without a functioning macro cell site. While we don’t believe there is an immediate risk of technological obsolesce, it is impossible to predict technological innovation in a decade, much less over multiple decades. Further, there are only four major players in the US carrier industry (and potentially three if the Sprint /T-Mobile merger gets approved), limiting the number of potential tenants for these REITs. Carriers are incentivized to invest capital in alternative technologies like small-cells and DAS to try to reduce the competitive position of cell towers. Perhaps the most significant risk relates to the fact that these REITs own just 30% of the land under their structures and lease the other 70% through (typically long-term) ground leases.
bearish cell towers 2019
Potential Outcomes of Sprint/T-Mobile Deal
The cell tower REIT industry continues to await the outcome of the Sprint/T-Mobile merger, which has the potential to alter the competitive dynamics within the telecommunications space. Earlier this year, the third and fourth largest US wireless carriers announced a long-awaited merger agreement that would consolidate the industry into three nearly-equal competitors along with AT&T (NYSE:T) and Verizon (NYSE:VZ). Following years of discussions and a failed attempt at a merger in 2014 that was blocked by US regulators, the two firms finally came to terms on the potential $26-billion deal. The combined entity would command a roughly 35% share of total retail wireless connections, including 25% of postpaid phone subscribers and nearly 60% of prepaid phone subscribers.
While revenues from Sprint (NYSE:S) and T-Mobile (NASDAQ:TMUS) comprise a combined 26% of total industry revenues, the “overlap” between Sprint and T-Mobile cell tower sites is roughly 4% of total industry revenues. This 4% represents a "worst-case-scenario" in which T-Mobile completely shuts down the Sprint network on redundant towers and does not subsequently need to upgrade their equipment to handle the increased capacity. Crown Castle, which is US-focused, would be most affected, while American Tower, which has a significant international presence, would be relatively unscathed.
Last week, The Wall Street Journal reported that the Department of Justice informed T-Mobile and Sprint that the deal is “unlikely to be approved as currently structured.” The general consensus among analysts is that the odds of approval have now decreased from above 75% late last year to below 50% currently. As we discussed during our last update, we believe that the merger approval will likely hinge on the regulator's assessment of the likelihood and forecast of four key unknown factors, ranked in order of importance.
1) Can Sprint survive without a merger?
2) Would Sprint have other suitors (cable companies, tech companies)?
3) Would a merger help or hurt the growth of 5G?
4) Is wireless broadband a competitor to the home broadband providers?
Given the uncertain answers to these four questions and a wide range of permutations of possible outcomes, analysts are generally split as to whether cell tower REIT investors should be rooting for or against the potential merger. Our assessment is that cell tower REITs would ultimately benefit from a no-deal outcome, but that the downside risk is more significant if Sprint were to indeed fail as a result. We outline our assessment through an analysis of the three possible outcomes.
Scenario 1: Merger Approved
The cellular carrier industry would be consolidated into three players of roughly equal size. With more balance sheet capacity, the merged T-Mobile would likely ramp up network spending in line with Verizon and AT&T, which would translate into an immediate boost to cell tower REIT revenues. With one less competitor, the 5G rollout begins sooner but is focused on higher-value markets and consumer pricing would likely become less competitive, translating into higher margins for carriers, but potentially fueling further network investment. Over time, however, the competitive positioning of cell tower REITs would be diminished. Carrier initiatives to gain leverage over cell tower REITs, including building their own towers or taking over leases from REITs, would be incrementally more successful and growth would moderate but remain at above-inflation levels due to the still-favorable competitive positioning of cell tower REITs.
Probability: 50%. For Cell Tower REITs: Decent/Default Outcome.
Scenario 2: Merger Rejected. Sprint Finds Third-Party Partner
The merger gets rejected, but Sprint's underpriced and valuable network and spectrum assets are attractive to cable broadband providers (Comcast (NASDAQ:CMCSA), Charter Altice) who recognize the mounting and legitimate threat from 5G fixed wireless broadband, which we believe to be underappreciated by the market. Alternatively, a cash-flush technology company (Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOG) (NASDAQ:GOOGL), or Microsoft (NASDAQ:MSFT)) sees the assets as an underpriced compliment to their existing data center infrastructure and a new source of distribution to mitigate the competitive threats from the incumbent broadband providers. Sprint is able to leverage this partnership to become a legitimate competitor in the space. Meanwhile, T-Mobile continues its strong run of adding customers at sector-leading rates. The carrier industry remains at four players with T-Mobile and Sprint close behind and consumer pricing competition remains intense. The four carriers battle to become leaders in 5G and access is widespread. Initiatives to gain leverage over cell tower REITs are largely unsuccessful and pricing power remains strong.
Probability 35%. For Cell Tower REITs: Best Outcome.
Scenario 3: Merger Rejected. Sprint Fails
The merger gets rejected Sprint is unable to find a suitable partner. Sprint's investors, including SoftBank (OTCPK:SFTBY), scale back their investment and the network falls further behind the other three carriers and continues to lose customers until being unable to operate any longer. In bankruptcy, Sprint's assets are distributed around the telecom sector including to AT&T and Verizon, further strengthening their grip on the emerging duopoly. T-Mobile's strong run of performance slows down and cannot keep up with the network spending of the two major players without the complementary asset of Sprint. The carrier industry becomes a de-facto duopoly and cell tower REIT competitive positioning is significantly diminished. Consumer pricing becomes significantly less competitive and the 5G rollout continues but is isolated only to the most high-margin deployments. Carrier initiatives to gain leverage over tower REITs are largely successful and the industry becomes more akin to the data center REIT sector over the past several years with below-inflation internal growth rates and weak pricing power over increasingly dominant tenants.
Probability 15%. For Cell Tower REITs: Worst Outcome.
Recent Cell Tower REIT Fundamental Performance
2018 was another strong year for the cell tower sector as the early effects of network densification to fuel 5G networks powered above-trend organic growth. Organic tower revenue, effectively the same-store NOI equivalent, continues to grow at a sector-leading 6%+ rate as carriers continue to invest heavily in network densification and equipment upgrades. With the high degree of operating leverage inherent with the co-location tower model, tower REITs are seeing amplified benefits increased network spending.
cell tower REIT AFFO
These REITs are forecasting an average 8% rise in AFFO per share in 2019, among the strongest rates of growth in the real estate sector. Along with robust organic growth, external growth via strategic acquisitions remains a central focus of cell tower REITs, aided by the cost of capital advantage enjoyed by these firms. As we'll discuss shortly, cell tower REITs trade at an estimated 30-50% premium to private market-implied net asset values, meaning that external acquisitions, though somewhat limited, are easily accretive to earnings.
REIT tower sites
The combination of strong organic growth and continued external growth fueled a 16% rise in total property revenues in 2018, rising from the 13% rate achieved in 2017, boosted by the effects of Crown Castle's merger with small-cell operator Lightower. While appearing to be very conservative, these REITs offered guidance that projects a 5% rise in property revenues in 2019.
Carrier Performance & Capital Spending
Cell tower REITs are inexorably linked with the underlying performance of their cell carrier tenants, who delivered another very strong year. AT&T, Verizon, T-Mobile, and Sprint combined to add more than 4.5 million post-paid wireless customers in 2018, a sharp increase from the 3.8 million added in 2017, and the strongest year ever for cell carriers. Pricing remains highly competitive with customers effectively seeing an average 3% drop in their phone bills.
cell carrier pricing
Capital spending by cell carriers is a key driver of growth for tower REITs. Capex among US carriers had been in a lull for the past two years as much of the available capital has been put towards spectrum acquisition which will power the next generation 5G networks. Capital spending is expected to ramp up again as carriers begin to deploy 5G networks over the next five to ten years.
network spending cell
Recent & Long-Term Stock Performance
Since NAREIT began tracking the sector in 2012, cell tower REITs have outperformed the REIT index in every year besides 2014. Cell towers continue to be one of the few remaining growth engines of the REIT sector and, considering the positive operating environment forecast for 2018-2020, don't appear to be slowing down anytime soon.
REIT sectors
The good times have continued for the cell tower REIT sector this year despite the merger uncertainties. The Hoya Capital Cell Tower REIT Index has gained more than 19% this year compared to a 14% gain in the broader REIT index. Receding interest rates and signs of moderating global growth have lifted REIT valuations across the sector following the worst year since the recession.
cell tower REIT performance
American Tower has led the way over the last two years, followed by SBA Communications. Investors remain somewhat skeptical on the economic returns from Crown Castle's significant investment in fiber and small cells over the last several years, explaining some of the underperformance since 2016.
cell tower REIT stocks
Valuation of Cell Tower REITs
Strong performance over the past four years has pushed cell tower REIT valuations towards the most expensive end of the real estate sector. Cell towers trade at a sizable Free Cash Flow premium (aka AFFO, FAD, CAD) to the REIT average, but after accounting for the sector-leading expected growth rates, cell tower REITs very quite attractively valued based on the FCF/G metric. As discussed above, cell tower REITs trade at some of the widest NAV premiums in the real estate sector, giving these companies the "cheap" equity capital to fuel further external growth.
cell tower REIT valuation
Cell Tower REIT Dividend Yield
Cell tower REITs are among the lowest-yielding REIT sectors, paying out just 53% of their free cash flow and instead of plowing that capital back into the business to fuel external growth. The sector pays an average 2.2% dividend yield, among the lowest among REITs.
cell tower REIT dividend yield
Within the sector, only Crown Castle acts like a typical REIT when it comes to distributions. CCI pays a healthy 3.7% dividend yield, while AMT pays 1.9%, and SBAC does not yet pay a dividend.
cell tower dividends
Cell Tower REITs & Interest Rates
Cell tower REITs skew towards the "growth" side of the real estate sector, reacting more to economic growth expectations than to changes in interest rates. Among US REIT sectors, cell towers are the third least interest rate sensitive sector and could provide balance to an otherwise rate-sensitive REIT portfolio.
REITs interest rates
Within the sector, AMT and SBAC are classified as Growth REITs. CCI, which pays a 4% dividend, is a Hybrid REIT and has characteristics that are more aligned with the REIT averages.
interest rates REITs
Bottom Line: Wireless Broadband is 5G's Killer App
With 5G on the horizon, Cell Tower REITs have outperformed the broader real estate sector in each of the past four years. 5G technology will fundamentally disrupt the telecommunications industry. We believe that the true “killer app” for 5G will be fixed wireless broadband internet, as dense small cell networks will allow carriers to deliver fiber-like speeds without the wires.
The technological limitations of 5G – notably the small coverage area – mean that macro towers will continue to be the primary hub of cellular networks. Network densification drives cell tower revenues. The Sprint/T-Mobile merger saga continues. Just when a deal appeared imminent, a new curveball emerges. We think that Sprint’s troubles are overstated and that no-deal outcome would benefit tower REITs.
Cell tower REITs continue to benefit from a favorable competitive positioning within the telecommunication sector. Low supply and high demand have translated into substantial pricing power for cell tower operators. We analyzed the three potential merger outcomes and believe that a no-deal scenario would be the best-case scenario for these companies. This analysis, however, is contingent upon our view that wireless broadband does indeed become the "killer app" of 5G and that Sprint is a valuable partner or acquisition target from a third-party (cable or technology) company as a result.
The risk of a no-deal outcome is that the carrier industry devolves into an effective duopoly, which would translate into significant downside risk to the competitive positioning of the cell tower REIT sector. The success of the early 5G fixed wireless broadband tests in a handful of US cities will be closely monitored by all players in the industry and the ultimate fate of Sprint may hinge on its relative success. If wireless broadband is indeed the 5G "killer app" we think it could be, the future looks bright for cell tower REITs and carriers alike.
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>>> Here's Why You Should Buy SBA Communications (SBAC) Stock Now
Zacks Equity Research
April 17, 2020
https://finance.yahoo.com/news/heres-why-buy-sba-communications-144102324.html
It seems to be a wise decision to add SBA Communications Corporation SBAC, given its efforts to extend business in select international markets with high growth characteristics. Moreover, amid growing demand for data volume and deployment of 5G network, wireless carriers are expanding and enhancing their networks. These positive trends are expected to drive demand for the company’s communications infrastructure assets.
SBA Communications is expected to witness year-over-year growth in funds from operations (FFO) per share in 2020. The company also beat estimates in the last four reported quarter, the average positive surprise being 2.8%.
Its price performance also seems impressive. In fact, this Zacks Rank #2 (Buy) stock has gained 28.1% in the year-to-date period against the industry’s decline of 13.9%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Notably, SBA Communications has a number of other aspects that make it a solid investment choice.
Why the Stock is an Attractive Pick
Favorable industry tailwinds: Mobile subscriber growth has significantly boosted the wireless tower industry. Next-generation 4G LTE networks and increased usage of smartphones and tablets are creating impressive demand for the company’s site leasing business. With increasing smartphone adoption, greater broadband demand and plans for 4G service worldwide, the company is set to pursue international wireless infrastructure opportunities. Furthermore, wireless consumer demand is expected to considerably increase in the upcoming years supported by innovation and accelerated adoption of data-driven mobile devices and applications such as machine-to-machine connections, social networking and streaming of video.SBA Communications’ extensive infrastructure portfolio is well-positioned to meet such demands.
Encouraging FFO picture: SBA Communications’ projected FFO growth rate is 10.3% for 2020. This is higher than the industry average of 0.5%. Further, management expects 2020 AFFO per share in the range of $9.07-$9.47.
Strategic Portfolio Expansion: With decent presence in the United Sates and its territories, SBA Communications has developed or acquired thousands of towers throughout Central and South America and across Canada over the years. Presently, the company continues to expand its tower portfolio and seek new growth opportunities. Supported by strong industry fundamentals, the company is identifying international markets with high growth characteristics and extending its business in these regions. In fact, during the December-end quarter, it acquired 1,336 communication sites for a total cash consideration of $471.7 million.
Encouraging Dividend Payout: Solid dividend payouts remain the biggest attraction for REIT investors, and SBA Communications is boosting shareholder wealth through dividend hikes. Specifically, concurrent with its fourth-quarter 2019 earnings release, the company announced a quarterly cash dividend of 46.5 cents on its Class A common stock, indicating a 25.7% hike from its October-December quarter payout. Given the company’s financial position compared with the industry’s, this dividend rate is anticipated to be sustainable.
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Interesting. As for European real estate market, there is current downturn in property prices for property in Germany https://tranio.com/germany/ etc. Developed countries like Germany, France or the USA have already taken extensive and effective measures to curb the spread of the pandemic. As reported by CNBC, the outbreak in China is under control and economic activity is slowly recovering.
Interesting. As for European real estate market, there is current downturn in property prices for property in Germany https://tranio.com/germany/ etc. Developed countries like Germany, France or the USA have already taken extensive and effective measures to curb the spread of the pandemic. As reported by CNBC, the outbreak in China is under control and economic activity is slowly recovering.
>>> Beware the Big Price Tag for a Mall REIT With Roots in Sears
Barron's
By Bill Alpert
March 6, 2020
https://www.barrons.com/articles/beware-the-big-price-tag-for-a-mall-reit-with-roots-in-sears-51583548833?siteid=yhoof2&yptr=yahoo
Real estate was the ace in the hole in Eddie Lampert’s investment strategy for Sears Holdings. So in 2015—a decade after the hedge fund manager’s ESL Investments took over the struggling retail chain— Sears spun off its interests in some 260 shopping mall properties into a real estate investment trust called Seritage Growth Properties.
Before that year was out, Berkshire Hathaway CEO Warren Buffett used his own money to buy a 7% stake in Seritage (SRG) for about $35 a share. The stock hit $57 the next year amid enthusiasm that Seritage would replace the bargain rents paid by Sears with market-rate tenants. The real estate play looked like a winner to Barron’s in early 2017.
But Sears was still Seritage’s main tenant. When Sears Holdings (SHLDQ) filed for bankruptcy protection in 2018, the retailer still filled 70% of Seritage’s space.
Seritage stock now goes for about $31 a share. That prices the enterprise at $3 billion and, by most measures, values Seritage on a par with the better mall REITs. Looking closely at Seritage’s recent results, it is hard to understand why its stock deserves that generosity. Seritage and Lampert declined our requests for comment, while Buffett didn’t respond to our query.
After Sears’ bankruptcy, the chain vacated over 200 Seritage properties. Its contribution to the REIT’s rental income has dropped to 5% of the total. Revenue at Seritage in 2019 was $169 million, down sharply from the 2016 level of $250 million. Its net loss in 2019 was $64 million, or 1.77 cents a share. REITs use an operating cash-flow measure called funds from operations, or FFO, and that number sank at Seritage from a positive $16 million in 2018 to a negative $34 million in 2019, or minus 61 cents a share. It pays no dividends on its common stock.
The red ink will be about as deep this year, Wall Street says. One has to look to 2021 to find a positive forecast for Seritage funds from operations. The sole analyst polled by FactSet projects about $20 million in FFO for next year, or 38 cents a share, on revenue of $260 million. That means today’s stock price for Seritage is 80 times next year’s forecast for FFO.
By way of comparison, the classiest of the class-A mall operators, Simon Property Group (SPG)—at its current stock price of $119—trades for just nine times the consensus forecast for 2021 funds from operations. Macerich (MAC) trades for six times. A well-regarded shopping center REIT, such as Regency Centers (REG), trades for 15 times next year’s FFO.
Malls are a forlorn sector these days, but even in its unhappy class, Seritage stands out for how many of its properties stand vacant. The company’s annual report makes painful reading, with a six-page list of wholly owned properties studded with empty malls in towns like Burnsville, Minn., and Lebanon, Pa. In all, only 43% of Seritage’s 29 million square feet of space was leased at the end of December. At Simon Property, 95% of retail space was occupied.
A main theme in the Seritage strategy has been the re-leasing of Sears locations to new tenants, at rents several-fold higher. But many retail tenants are struggling, these days. In addition to the 6% of its rent roll still paid by Sears and Kmart at year end, Seritage’s top tenants included the arcade chain Dave & Buster’s Entertainment (PLAY), the At Home Group (HOME) furnishings chain, and the clothing discounter Burlington Stores (BURL)—totaling 18% of the REIT’s annual rent and all causing angst in their own investors lately, amid faltering revenue.
Seritage’s other strategy is to redevelop its retail space and parking lots as fitness centers, restaurants, medical offices, or multifamily dwellings. In recent visits with investors, Seritage executives called attention to mixed-use projects near Seattle, Dallas, and Chicago that will together cost over $325 million in just the initial phase.
The REIT has good reason for staying in touch with institutional investors. Seritage has some remaining credit facilities, but without operating cash flow, it will have to fund its billions of dollars worth of redevelopment ambitions by selling off property and by selling stock. So shareholders should brace for dilution.
Meanwhile, if you’ve got a clever use for an empty Sears store, give Seritage a call.
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Buffett - >>> Seritage Growth Properties (SRG) is a publicly-traded, self-administered and self-managed REIT with 184 wholly-owned properties and 28 joint venture properties totaling approximately 33.4 million square feet of space across 44 states and Puerto Rico. The Company was formed to unlock the underlying real estate value of a high-quality retail portfolio it acquired from Sears Holdings in July 2015. The Company's mission is to create and own revitalized shopping, dining, entertainment and mixed-use destinations that provide enriched experiences for consumers and local communities, and create long-term value for our shareholders. <<<
>>> Real Estate Billionaire Barrack Says Commercial Mortgages on Brink of Collapse
Bloomberg
By Erik Schatzker
March 22, 2020
https://www.bloomberg.com/news/articles/2020-03-22/colony-s-barrack-says-commercial-mortgages-on-brink-of-collapse?srnd=premium
Warns of cascade of margin calls, foreclosures, bank failures
White paper calls for banks, government to coordinate relief
Real estate billionaire Tom Barrack said the U.S. commercial-mortgage market is on the brink of collapse and predicted a “domino effect” of catastrophic economic consequences if banks and government don’t take prompt action to keep borrowers from defaulting.
Barrack, chairman and chief executive officer of Colony Capital Inc., warns in a white paper of a chain reaction of margin calls, mass foreclosures, evictions and, potentially, bank failures due to the coronavirus pandemic and consequent shutdown of much of the U.S. economy. The paper was posted late Sunday on online publishing platform Medium.
“Loan repayment demands are likely to escalate on a systemic level, triggering a domino effect of borrower defaults that will swiftly and severely impact the broad range of stakeholders in the entire real estate market, including property and home owners, landlords, developers, hotel operators and their respective tenants and employees,” he wrote.
Barrack said the impact could dwarf that of the Great Depression.
Rescue Plan
Specifically, his paper highlights the fragility of mortgage real estate investment trusts, or REITs, and credit funds and the lenders that provide them with liquidity via repurchase financing. He argues for a rescue plan coordinated by banks and supported by government that includes the following:
$500 billion of taxpayer funds to provide liquidity to the financial system, including for loans and repurchase contract
Temporary suspensions of both mark-to-market accounting and certain loan-modification rules
Delaying until 2024 a new accounting rule governing the recognition of credit losses
Leeway for banks to provide loan forbearance without triggering bank-capital rule violations
Barrack, a longtime friend of President Donald Trump, has much at stake in the outcome. Most of Colony’s investments are in or connected to real estate. The Los Angeles-based firm’s year-end financial report lists $3.54 billion of assets in hospitality real estate and $725 million of debt and equity investments at Colony Credit Real Estate Inc., its publicly traded commercial mortgage REIT.
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>>> Commercial real estate booms in cannabis-friendly states
Yahoo Finance
Sarah Paynter
February 12, 2020
https://finance.yahoo.com/news/commercial-real-estate-booms-in-cannabisfriendly-states-164314252.html
Investors are buying up warehouses and retail space in cannabis-friendly states.
In a reversal from 2018 trends, cannabis investors are buying up commercial property, particularly warehouses, in states where recreational cannabis use has been legalized for more than three years, according to a new study by the National Association of Realtors, based on a September 2019 survey of over 600 commercial brokers in states like Colorado, where recreational cannabis use is legalized, and in states, like Florida, where medical marijuana use is legal.
The U.S. has a patchwork of marijuana legalization laws by state, despite federal laws against the drug. Graphic by the National Association of Realtors.
“It is very important to understand the supply and demand, and the regulatory dynamic, in each state. Focusing on states with higher barriers to entry makes a license more valuable and makes that real estate more valuable,” said Katie Barthmaier, chief executive officer of Green Acreage, a cannabis-focused real estate investment trust.
Warehouse demand increased in 42% of the markets with longstanding (over three years) recreational legalization, and 34% of markets that legalized recreational use since 2016 also saw increased demand from the previous year. Only 18% of markets without recreational marijuana legalization claimed warehouse demand growth.
In 2018, warehouse demand in states with only medical use outpaced demand in states with recreational use, 34% to 27%, respectively, according to last year’s study.
In a reversal from 2018 trends, cannabis investors are buying up commercial property in states where recreational cannabis use has been legalized for more than three years. Graphic by the National Association of Realtors.
“In states that have a longstanding legal [cannabis] industry, warehouses have especially been of interest to commercial investors. That increased demand, I suspect is not just for storage but for growing,” said Dr. Jessica Lautz, vice president of demographics and behavioral insights for the National Association of Realtors.
Meanwhile, demand for retail space increased in 27% of longstanding recreation-friendly markets (before 2016), compared to 19% of recently-legalized markets or 18% of prescription-only markets. The trend is a reversal from 2018, when storefronts saw greater growth in medical use-only markets than in markets with recreational use.
“Investors knew folks would need space to cultivate and manufacture cannabis. A lot of unused space was rented up and bought by investors,” said Jack Nichols, general counsel and chief operating officer of Harborside, a Calif.-based marijuana company. Nichols said that cannabis investor interest has inflated real estate prices as demand for commercial space grows.
Cannabis companies are held back
Because cannabis companies cannot turn to traditional banks, buying or leasing property can be difficult. Financing is usually supplied by specialized venture capitalists, private real estate investment funds and publicly-traded companies.
“On the investment side, banks cannot loan you money, insurance companies cannot deal with you and few funds can enter the space. There is no institutional capital in the space,” said Ori Bytton, founder of California-based real estate management company for cannabis operators, WeGrow CA, and founder and chief executive officer of Natura Life + Science, the largest vertically-integrated grow and processing facility in California.
Cannabis companies say that investor-driven capital offers loans at high interest rates and with hefty restrictions.
“Everybody thinks cannabis is the most profitable business, and they try to take advantage of it… They all wanted me to personally put up my house as a guarantee on a lease… It’s egregious,” said Heidi Adams, chief marketing officer at Calif.-based Henry’s Original cannabis company, which she said searched a year and a half before finding a “reasonable” lease.
Restrictions could soon lift, however, if the Senate passes the SAFE Banking Act, which would give cannabis companies access to traditional banking. The act was passed by the U.S. House of Representatives in September 2019.
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>>> Pacer Benchmark Industrial Real Estate SCTR ETF (INDS)
Expense Ratio: 0.6%
https://investorplace.com/2019/02/5-of-the-best-thematic-etfs-to-consider/
Some of the best ETFs provide access to the real estate sector and do so in unique fashion. The Pacer Benchmark Industrial Real Estate SCTR ETF (NYSEARCA:INDS) hails from a family of unique, thematic ETFs with real estate exposure. INDS offers exposure to one of the real estate industry’s most compelling growth segments.
Industrial real estate investment trusts (REITs), including those residing in INDS, own facilities and warehouses used to store goods for the e-commerce boom. Industrial REITs are “important because investing in this space is a roundabout way to play the e-commerce sector without exposure to volatile and expensive retail equities like Amazon, Walmart and more,” according to Pacer.
INDS is beating the largest U.S. REIT ETF by nearly 360 basis points this years and this thematic ETF, which will be one year old in May, does not skimp on yield, as highlighted by a 30-day SEC yield of 3%.
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>>>2 Investments To 'Load Up' Before The Recession
Nov. 28, 2019
Jussi Askola
REITs, real estate, research analyst
https://seekingalpha.com/article/4308392-2-investments-load-up-recession
Summary
The investment world is faced with an unprecedented challenge: both stocks and bonds have simultaneously become overvalued and risky.
Investors are quickly seeking refuge in real assets such as commercial properties, pipelines, farmland, airports, timberland, and other.
While investing in real assets may have been reserved to high net worth individuals in the past, today there exists a lot of publicly-traded alternatives.
Below we present 2 of our favorite real assets and explain why their cash flows are resilient to recessions.
Looking for a portfolio of ideas like this one? Members of High Yield Landlord get exclusive access to our model portfolio. Get started today »
Investors are today faced with a big challenge:
"There is nothing interesting to buy."
On one hand, stocks are trading at a 30% premium to historical averages – despite slowing growth in a late cycle economy:
And on the other hand, bonds pay historically low interest rates that may not even cover inflation in the long run.
This creates two major problems to investors:
Stocks: With high valuations in a late cycle, risks are very high and investors could suffer significant capital losses from a return to historic valuation multiples.
Bonds: Not enough income is earned to meet investor's immediate needs. This is particularly dangerous to large institutions and retirees.
What is then the solution to deal with these challenges?
Our preferred strategy is to invest in Real Assets. Commercial properties, farmland, timberland, energy pipelines and other similar real assets are the only remaining investments that can still provide high income and inflation protection – without taking an enormous amount of risk.
These are not just the empty words of a Seeking Alpha author. Over the past 10 years, institutional capital in the real asset space has grown by $30 trillion. Yes that’s trillion with a “t”. Over the coming 10 years, another $50 trillion is expected to shift to real asset investments.
real asset allocations on the rise
Stocks and bonds are not providing the needed returns and professional investors are quickly changing portfolio allocations. By 2030, the allocations to real assets are expected to reach up to 40% of intuitions portfolios:
So far, individual investors have been slow to react. With poorer access to research and no expertise in real asset investing, individual investors continue to overexpose themselves to the risks of owning traditional stocks and bonds.
Fortunately, you do not need to be a multi-billion-dollar institution to invest in real assets. At High Yield Landlord, we specialize in liquid alternatives to gain exposure to high yielding real assets. This includes REITs, MLPs, Utilities, and other listed infrastructure companies.
If you've read until here, we want to share with you two of our "Top Picks" among high-yielding REIT opportunities. These two REITs are particularly well-positioned in today’s late cycle economy because of their more defensive nature, steady cash flow growth, and high level of dividend security.
INVESTMENT #1 – Medical Properties Trust (MPW)
MPW is our one and only Healthcare REIT investment at the moment.
The Buy Thesis in 3 Bullet Points:
Superior Cap Rates: Most REITs compete for properties in the 5-7% cap rate range. MPW is able to target greater cap rates at closer to 8% by specializing in hospitals - a property type that is mostly ignored by the investment community.
Resilience in Late Cycle: People need hospitals - regardless of economic conditions. MPW's tenants are healthy and enjoy strong rent coverage ratios. If we were to go into a recession tomorrow, we would expect the cash flow to remain stable - allowing it to pay a sustainable 5.3% dividend yield.
Strong Acquisition Pipeline: As the only "pure-play" Hospital REIT, MPW enjoys valuable relationships with operators to conduct sale and leaseback transactions. With a strong acquisition pipeline and the capital to fund it, we expect 5-8% annual growth in the coming years.
You can read our full investment thesis here:
Investing In Hospitals: Recession Resilience, High Growth, And 5.6% Yield
Recap of 3rd Quarter Results:
This company is doing absolutely amazing:
It beat on FFO and revenue expectations. It also reaffirmed its full year guidance – which it already boosted during the last quarter.
The CEO talks about a “record-breaking year” with “monumental results”. This is because year-to-date, the company has grown its assets by 40%!
Its new acquisitions are done at ~8% cap rates – which results in immediately accretive growth.
They note that they have a pipeline of up to $5 billion for transactions in the coming quarters. The company is not slowing down.
The investment story was already strong in MPW, but with these new acquisitions, the story is only getting better. We also love the recent expansion to more global markets including the UK and Switzerland which have very favorable demographics for hospitals. With such healthy spreads, and defensive properties, we believe that MPW is a near certain future outperformer. If the share price remains around $20 per share, we will buy more shares in the near term.
INVESTMENT #2 – EPR Properties (EPR)
EPR Properties (EPR) is one of our oldest investments. We invested heavily when it traded at mid-$50 and have a large capital gain at $77 today. To this day, it remains our Favorite net lease REIT investment idea.
The Buy Thesis in 3 Bullet Points:
Alpha-Rich Strategy: EPR targets specialty net lease assets that are ignored by most other investors. These include movie theaters, golf complexes, ski resorts, and other entertainment assets. They come with greater cap rates, longer leases, and higher rent increases.
History of Successful Execution: EPR has historically been a massive outperformer and everything points out to further outperformance in the long run.
Simple Story: The company beats its peers on all fronts. It pays a higher yield (6%), it grows faster (5-8%), and it has more upside potential due to its discounted multiple (14x FFO).
You can read our full investment thesis here:
A New Opportunity Has Emerged In EPR Properties
Recap of 3rd Quarter Results:
EPR has a long history of consistently beating expectations and surprising to the upside. The last quarter was no different:
It beat FFO and revenue expectations for the quarter. It also boosted its full year guidance.
It invested $118 million in new properties over the past 3 months alone. A big portion went into golf complexes such as the one illustrated above.
EPR is currently enjoying historically high spreads on its new investments and the guidance for further acquisitions is very strong.
EPR also issued $500 million in senior unsecured notes with a 10-year term at a 3.75% interest rate during the quarter. This cheap capital was used to refinance its previous notes that were yielding 5.75%.
The dividend is up by 4.2% as compared to same quarter last year.
We expect another dividend increase sometime in the coming quarters, likely in early 2020. We are very bullish and recently upgraded EPR into a Strong Buy. The discount to peers is historically high and the company is stronger than ever before. We expect ~15% upside from repricing to a higher FFO multiple and 5-8% annual FFO growth. Add to that a 6% dividend yield, and you have a recipe for consistent and predictable outperformance.
It's by targeting this type of defensive, yet undervalued REITs that we aim to outperform in today's volatile and uncertain environment.
As of today, our Core Portfolio has a 7.4% dividend yield with a conservative 68% payout ratio. Beyond the dividends, the core holdings are trading substantially below intrinsic value at just 9.2x Cash Flow - providing both margin of safety and capital appreciation potential.
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>>> EPR Properties (EPR) is a specialty real estate investment trust (REIT) that invests in properties in select market segments which require unique industry knowledge, while offering the potential for stable and attractive returns. Our total investments are nearly $7.2 billion and our primary investment segments are Entertainment, Recreation and Education. We adhere to rigorous underwriting and investing criteria centered on key industry and property level cash flow standards. We believe our focused niche approach provides a competitive advantage, and the potential for higher growth and better yields. <<<
>>> Medical Properties Trust, Inc. (MPW) is a self-advised real estate investment trust formed to acquire and develop net-leased hospital facilities. The Company's financing model facilitates acquisitions and recapitalizations and allows operators of hospitals to unlock the value of their real estate assets to fund facility improvements, technology upgrades and other investments in operations. <<<
>>> California Bans Private Prisons, Immigrant Detention Centers
Newly signed law will force federal government to shut down four facilities for migrants in state
Bloomberg
By Alejandro Lazo in Sacramento, Calif., and Michelle Hackman in Washington
Oct. 11, 2019
https://www.wsj.com/articles/california-bans-private-prisons-immigrant-detention-centers-11570820873
California will work to end the use of private prisons within its borders, including for-profit immigrant detention facilities, under a law signed Friday by Gov. Gavin Newsom.
The measure, originally focused only on prisons, was expanded late in the legislative session this year to include jails that hold migrants, as they became a polarizing political issue in left-leaning California.
The new law prohibits the state from entering into or renewing contracts with private prison companies after Jan. 1 and bans their use by the state after Jan. 1, 2028. It also forbids the operation of private facilities contracted by the federal government to hold migrants in California starting next year, or whenever their current contracts expire.
“During my inaugural address, I vowed to end private prisons, because they contribute to over-incarceration, including those that incarcerate California inmates and those that detain immigrants and asylum seekers,” Mr. Newsom said in a statement. “These for-profit prisons do not reflect our values.”
An analysis earlier this year by the state Senate said the Trump administration would likely challenge the law but concluded California would likely prevail in court. A Federal Bureau of Prisons spokeswoman declined to comment.
A spokesman for Immigration and Customs Enforcement, which oversees detention centers for adult migrants, said once the law goes into effect, the agency would move detainees currently in California to facilities elsewhere in the country.
Four large detention centers could be shut down by the new law. All are operated by private prison companies, which have seen increased business from the Trump administration’s stepped-up immigration enforcement and now account for the bulk of migrant detentions in the state of California.
Two of those facilities are run by GEO Group Inc., while CoreCivic Inc. and the Management and Training Corp. run the other two. A GEO Group spokeswoman said she believed most or all of the new law will be found unconstitutional by a court. CoreCivic said the state’s ban conflicts with its stated goal to reduce prison overcrowding. A spokesman for MTC said the company provides “a valuable service to our customers and a safe and humane environment for those in our care.”
ICE detention centers will again be in the spotlight this fall as some liberal members of Congress and activists plan to inject a demand to defund the agency into federal spending talks. Activists also hope California’s ban will spur similar action in other states.
“It’s going to really set an example for other communities,” said Alejandra Pablos, an activist and Mexican national who traveled to Sacramento from Tucson last month to attend a rally in support of the law. “People are going to recognize that this could be done.”
In 2017, California passed a law blocking local governments and law enforcement from making new contracts or expanding existing contracts with the federal government to detain undocumented immigrants.
Despite those efforts, ICE in April said it was seeking to expand its capacity in the state by 5,600 detainees, according to public documents. Currently ICE has a total capacity in California of about 4,000 beds, which represents less than 10% of the agency’s national detention capacity, a spokeswoman said.
In the 2018 fiscal year that ended Sept. 30, 396,448 people were booked into ICE detention facilities, some of which are operated privately. That is 22.5% more than during the previous 12 months, according to the Department of Homeland Security.
Three other states, New York, Illinois and Iowa, have prohibited their prison systems from using private facilities. In addition, Illinois earlier this year passed a law aimed at halting a proposed detention center in Dwight, Ill., effectively banning for-profit detention centers there. New York and Iowa laws don’t ban such facilities.
The law marks a rapid shift for California, which until recently relied on private prison operators to help relieve overcrowding in state facilities. California currently has four private prisons under contract, all run by the GEO Group, which house about 1,400 of the state’s 125,000 inmates.
The GEO Group’s prison contracts with the state run through 2023, and can’t be renewed under the new law except under a possible court order to relieve overcrowding.
Some experts question whether the law will go as far as intended in light of the court-order exemption and other exceptions in the law.
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>>> Prologis, Inc. (PLD) is the global leader in logistics real estate with a focus on high-barrier, high-growth markets. As of June 30, 2019, the company owned or had investments in, on a wholly owned basis or through co-investment ventures, properties and development projects expected to total approximately 786 million square feet (73 million square meters) in 19 countries. Prologis leases modern distribution facilities to a diverse base of approximately 5,100 customers principally across two major categories: business-to-business and retail/online fulfillment. <<<
LTC Properties (LTC) - >>> 3 Monthly Dividend Stocks to Buy Today
by Aaron Levitt
InvestorPlace
June 21, 2019
https://finance.yahoo.com/news/3-monthly-dividend-stocks-buy-185123145.html
Retirement: It’s all about one thing and that’s income … replacing a steady paycheck with your savings. With that, dividend stocks have plenty of appeal for retirees. Not only can you score higher yields than bonds, but you have the ability to grow those payouts over time as well. However, dividend stocks do have one major drawback.
Their payment schedules.
Most dividend stocks pay on a quarterly or even semi-annual basis. And while that may not seem like a problem, for many retirees used to a monthly or bi-weekly paycheck balancing cash flows can be a hard pill to swallow. After all, your mortgage, cable bill and car payments are due each month. To that end, getting a monthly dividend could be the answer to budgeting issues.
Luckily, there are plenty of dividend stocks that do happen to payout monthly. Here are three of the best.
Main Street Capital Corp (MAIN)
Dividend Yield: 5.89%
Most investors have never heard of businesses development companies (BDCs). That’s a shame because they can be some of the biggest yielding stocks around. BDCs are set up as pass-through entities much like real estate investment trusts, and similarly must pay out at least 90% of their earnings as dividends. How they earn that income is by loaning cash to mid-sized firms — companies too big to ask the local bank for a loan, but not big enough to launch a significant bond offering — at competitive rates. The best way to really think of them is like public-private equity firms.
And when it comes to BDCs, Main Street Capital (NASDAQ:MAIN) could be one of the best.
MAIN has provided capital to more than 200 private companies and thanks to its underwriting and deal standards, it has been very successful at turning a big profit on those loans. Just for the first quarter of this year, MAIN has already seen its investment income rise by 10% year-over-year. Those sorts of gains have allowed the firm to become a great dividend stock since its IPO in 2007. The BDC has managed to grow its payout by 127% since then.
Today, you can score a great recurring monthly dividend with a current yield of 5.89%. The best part is that MAIN’s management likes to reward shareholders further with extra supplemental dividends. This allows the BDC to use excess capital if a great deal can be had or for dividends. Adding those extra payouts in, and investors are looking at closer to 7.2% yield.
BDCs like MAIN provide a much-needed service to many firms. And thanks to its underwriting skill and focus on quality firms, MAIN has quickly become one heck of a dividend stock.
Shaw Communications (SJR)
Dividend Yield: 4.5%
One sector that can be a fertile hunting ground for dividend stocks, and is also known for its stability, is the telecommunications industry. Top stocks like AT&T (NYSE:T) and Verizon (NYSE:VZ) are in plenty of income portfolios. The reason is easy to see. Predictable fixed costs and demand allow telcos to pay out reliably healthy dividends. The problem is T and VZ aren’t monthly dividend stocks.
But Canada’s Shaw Communications (NYSE:SJR) is.
Shaw remains one of Canada’s largest telecoms and offers the usual bundle of services, including cable, internet and wireless phone services. It has been doing this for decades just like T and VZ here at home. And SJR has also tackled the problem of cord cutting head on. The telecom has been able to successfully convert customers to faster internet service to overcome lower cable subscriptions. This has helped boost revenues. At the same time, SJR has been one of the first movers in Canada for new 5G networks. That will give it a heads-up in bringing faster mobile internet, IoT and other applications to the nation.
As Shaw moves forward in these areas, investors can sit back and collect a hefty monthly yield. Currently, SJR pays 4.5%. Now, that dividend will fluctuate based on changes to the U.S./Canadian dollar. However, given Shaw’s stability and potential growth, it’s a small price to pay for a great dividend stock.
LTC Properties (LTC)
Dividend Yield: 4.89%
Honing in on so-called mega-trends is a great way to find dividend stocks that will stand the test of time. For monthly-dividend payer LTC Properties (NYSE:LTC) that mega-trend is the “Graying of America.”
Thanks to advances in medicine, lifespans are only increasing and longevity is almost assured at this point. LTC is uniquely positioned to take advantage of this fact. The firm invests in the senior housing and assisted living facility sectors of the healthcare property market. Currently, the firm owns/invests in roughly 200 properties that are right in the sweet spot for the nation’s aging baby boomers. Demand for these facilities continues to grow as more seniors need aid to get along.
The key is that LTC doesn’t operate the facilities or even own the buildings in many cases. What it does is provide financing for owner/operators to construct and renovate their properties or it buys properties from owners in a sale-leaseback transaction. It’s basically a mortgage lender that collects a monthly rent check. This position in the sector allows it to avoid some of the profitability issues that can result in senior living and assisted living facilities.
It also allows for some safety and steady profits on its end. Year-over-year, LTC saw a gain in FFO for the first quarter of 2019. Steady FFO gains have allowed it to raise its dividend over 46% since 2008. Currently, LTC yields 4.89%.
All in all, LTC is in the right area at the right time. And that makes it a great monthly dividend stock to own.
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>>> CareTrust REIT, Inc. is a self-administered, publicly-traded real estate investment trust engaged in the ownership, acquisition and leasing of seniors housing and healthcare-related properties. With 212 net-leased healthcare properties and three operated seniors housing properties in 28 states, CareTrust is pursuing opportunities across the nation to acquire properties that will be leased to a diverse group of local, regional and national seniors housing operators, healthcare services providers, and other healthcare-related businesses.
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>>> More trouble for malls: A new wave of closures from Gap, Victoria's Secret and others
11-30-18
CNBC
https://www.msn.com/en-us/money/topstocks/more-trouble-for-malls-a-new-wave-of-closures-from-gap-victorias-secret-and-others/ar-BBQgr3j?li=BBnb7Kz&ocid=mailsignout
Mall and shopping center owners across the U.S. are preparing to be hit by more store closures, following a brutal year that included department store chains like Bon-Ton and Sears going bankrupt, Toys R Us liquidating and even Walmart shutting dozens of its club stores.
Now, a slew of specialty retailers like Gap and L Brands are getting serious about downsizing, which will leave more vacant storefronts within malls until landlords are able to replace tenants.
And if retailers are not shutting stores, the focus is on negotiating with landlords over how to cut rent and other expenses. Real estate analysts say it's the retailers, not the mall and shopping center owners, that still have the upper hand in most negotiations today.
"Our early read on 2019 is more of the same ... with both malls and [shopping centers] facing another year of tepid earnings growth and store closure-related headwinds," Mizuho analyst Haendel St. Juste said.
Related video: Malls compete for shoppers from e-commerce ahead of holidays
The CEO of clothing retailer Express, David Kornberg, told analysts Thursday morning the company is "benefiting from reduced occupancy costs, which are expected to continue based on recent lease negotiations."
Express has 60 percent of its leases up for renewal over the next three years, and will be in a position to argue for slashed rents because of that, he said. Express currently has more than 600 stores, including outlets, across the U.S. and Puerto Rico.
The comments come after Gap earlier this month warned it could shut hundreds of stores for its namesake brand "quickly" and "aggressively."
"There are hundreds of other stores that likely don't fit our vision for the future of Gap brand specialty store, whether in terms of profitability, customer experience, traffic trends," CEO Art Peck said.
Then, L Brands CFO Stuart Burgdoerfer told analysts earlier in November the company is going to "take a hard look" at its real estate "over the next several months." He said L Brands hasn't had much flexibility to shut stores of late, without incurring a penalty, as leases in the U.S. typically last for 10 years, and can be 15 years in the U.K. But he hinted the company hopes to take a more aggressive stance, moving forward.
"We're doing some more purposed testing for Victoria's [Secret] around closing some stores that may not be as obvious financially, but really observing the sales transfer effects," Burgdoerfer said. Victoria's Secret has been viewed as dragging down Bath & Body Works, which is also owned by L Brands and is seeing improved sales trends for its lotions and candles as its stores are being remodeled.
Bucking the trend, Abercrombie & Fitch said Thursday morning it plans to close fewer stores this year than it previously anticipated, based on a regained momentum of its apparel business. It's now planning to shut just 40 locations in malls, compared with a prior target of 60. But it also still has 60 percent of its leases expiring by 2020, giving the company more flexibility in the coming months to ink better deals with property owners. Abercrombie currently has more than 850 stores globally, including those under the Hollister banner.
"I would say, we retain a lot of flexibility with our leases ... based on lease expiration," CEO Fran Horowitz told CNBC. "We work with our landlords. We negotiate with them."
All things considered, U.S. mall owners like Simon, Macerich, Taubman, Seritage, Brookfield and Unibail-Rodamco-Westfield must look for new ways to fill these gaps, as there aren't many retailers today opening new stores at the same size and scale as before the Great Recession.
Some are turning to co-working spaces, apartment complexes and health facilities to replace department stores. Others are building spaces that house multiple e-commerce brands on a rotating basis. There's a wave of digital brands like Casper, Warby Parker and Untuckit opening bricks-and-mortar locations.
"We continue to believe that we're still in the earlier stages of the reshaping of the retail landscape and facing a challenging backdrop marked by defensive landlords/weak pricing power, more anticipated store closures, and selective capital," St. Juste said.
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>>> Mortgages fast approaching 5 percent, a fresh blow to housing market
Wall St Journal
10-11-18
https://www.msn.com/en-us/money/realestate/mortgages-fast-approaching-5-percent-a-fresh-blow-to-housing-market/ar-BBOeBHg
Mortgage rates hit their highest level in more than seven years this week at nearly 5%, a level that could deter many home buyers and represents another setback for the slumping housing market.
The average rate for a 30-year fixed-rate mortgage rose to 4.9%—the largest weekly jump in about two years—according to data released Thursday by mortgage-finance giant Freddie Mac.
Lenders and real-estate agents say that, even now, all but the most qualified buyers making large down payments face borrowing rates of 5%.
Rates have been edging higher in recent months, but during “the last week we’ve seen an explosion higher in mortgage rates,” said Rodney Anderson, a mortgage lender in the Dallas area.
A 5% mortgage rate isn’t that high by historic standards. During much of the decade before the financial crisis, these rates hovered between 5% and 7%. But a return to more normal lending rates won’t feel normal to many buyers who have become accustomed to getting a mortgage loan at 4% or lower, and they could experience sticker shock at what they would have to pay now for a home loan.
“There’s almost a generation that has been used to seeing 3% or 4% rates that’s now seeing 5% rates,” said Vishal Garg, founder and chief executive of Better Mortgage.
For a house with a $250,000 mortgage, rates of 5% add about $150 to the monthly payments compared with the rate of 4% that borrowers could have had less than a year ago, according to LendingTree Inc., an online loan information site. That excludes taxes and insurance.
With rates hitting recent highs at a time when housing prices have been going up, too, some economists suggest sellers may need to lower prices if borrowers can’t afford high prices in a higher rate environment.
Higher mortgage rates have also slowed the housing market more than many expected. That’s a potentially troubling sign for the broader economy, since housing is often a bellwether for how rising interest rates could affect growth overall.
Many buyers who are struggling to find a home they can afford because of high prices are more sensitive to rising rates than they have been in the past.
Existing home sales fell in August from a year earlier, the sixth straight month of declines. Many would-be buyers sat out the buying season because of high housing prices, a historic shortage of homes to buy, and a tax bill that reduced some incentives for homeownership. Higher mortgage rates will likely compound their hesitation.
“With the escalation of prices, it could be that borrowers are running out of breath,” said Sam Khater, chief economist at Freddie Mac.
Once-hot markets are showing signs of cooling down. Bill Nelson, president of Your Home Free, a Dallas-based real-estate brokerage, said that in the neighborhoods where he works, the number of homes experiencing price cuts is more than double the number that are going into contract.
Brad and Virginia Reitinger closed on a new home in Dallas two weeks ago, and opted for an adjustable-rate mortgage so they could get a 4% rate. With a fixed-rate 30-year loan, they would have had to pay 4.5% to 5%, Mr. Reitinger said.
He added that the prospect of rates going even higher motivated them to move quickly on buying the new home. And if they had opted for a fixed-rate mortgage, he estimates, their monthly payment would have been higher by a couple hundred dollars. “When you run the numbers, it makes a big difference,” he said.
Adjustable-rate mortgages, which reset to market rates after a certain number of years, typically offer lower rates than fixed-rate mortgages at the beginning of their term. Some lenders say they have seen a surge of customer inquiries into the product as rates rise. They remain a relatively small part of the mortgage market, though: They made up about 12% of mortgage originations in the second quarter, according to industry research group Inside Mortgage Finance.
The rise in rates could have far-reaching effects for the mortgage industry. Some lenders—particularly nonbanks that don’t have other lines of business —could take on riskier customers to keep up their level of loan volume, or be forced to sell themselves. Many U.S. mortgage lenders, including some of the biggest players, didn’t exist a decade ago and only know a low-rate environment.
Long-term mortgage rates now have climbed nearly a full percentage point from 3.95% at the beginning of this year. House hunters who started searching months ago are acutely aware of the rise in rates.
“We have some people who prepared themselves early, and bless their heart for doing it—that’s what I’ve been preaching,” said Rick Bechtel, head of U.S. mortgage banking at TD Bank. “And they’re the ones who are most pained.”
A spate of recent positive economic news helped drive the 10-year Treasury note, to which mortgage rates are closely tied, to a seven-year high last week. The Federal Reserve, which has raised its key policy rate three times this year, is expected to do so again in December.
And higher rates will likely kill off any lingering possibility of a refinancing boom, which bailed out the mortgage industry in the years right after the 2008 financial crisis. If rates hit 5%, the pool of homeowners who would qualify for and benefit from a refinance will shrink to 1.55 million, according to mortgage-data and technology firm Black Knight Inc. That would be down about 64% since the start of the year, and the smallest pool since 2008.
Higher rates will be hardest on first-time buyers, who tend to make smaller down payments than older buyers who have built up equity in their previous homes, and middle-income buyers, who can least afford the extra cost. Mr. Khater said that about 45% of the loans that Freddie Mac is backing are to first-time buyers, up from about 30% normally, which also means that rising rates could have an even bigger impact on the market than usual.
“Affordability has already been an issue for consumers across the country,” said Sanjiv Das, CEO of Caliber Home Loans Inc., one of the biggest mortgage lenders in the country. “Now it becomes an even bigger issue.”
>>>
>>> Why Realty Income Corp. (O) is a Great Dividend Stock Right Now
Zacks Equity Research
October 5, 2018
https://finance.yahoo.com/news/why-realty-income-corp-o-131501911.html
Why Realty Income Corp. (O) is a Great Dividend Stock Right Now
Dividends are one of the best benefits to being a shareholder, but finding a great dividend stock is no easy task. Does Realty Income Corp. (O) have what it takes? Let's find out.
Getting big returns from financial portfolios, whether through stocks, bonds, ETFs, other securities, or a combination of all, is an investor's dream. But when you're an income investor, your primary focus is generating consistent cash flow from each of your liquid investments.
Cash flow can come from bond interest, interest from other types of investments, and of course, dividends. A dividend is the distribution of a company's earnings paid out to shareholders; it's often viewed by its dividend yield, a metric that measures a dividend as a percent of the current stock price. Many academic studies show that dividends make up large portions of long-term returns, and in many cases, dividend contributions surpass one-third of total returns.
Realty Income Corp. In Focus
Realty Income Corp. (O) is headquartered in San Diego, and is in the Finance sector. The stock has seen a price change of -0.84% since the start of the year. The real estate investment trust is paying out a dividend of $0.66 per share at the moment, with a dividend yield of 4.68% compared to the REIT and Equity Trust - Retail industry's yield of 5.07% and the S&P 500's yield of 1.81%.
Taking a look at the company's dividend growth, its current annualized dividend of $2.65 is up 4.5% from last year. Over the last 5 years, Realty Income Corp. has increased its dividend 5 times on a year-over-year basis for an average annual increase of 4.70%. Future dividend growth will depend on earnings growth as well as payout ratio, which is the proportion of a company's annual earnings per share that it pays out as a dividend. Realty Income Corp.'s current payout ratio is 85%, meaning it paid out 85% of its trailing 12-month EPS as dividend.
Looking at this fiscal year, O expects solid earnings growth. The Zacks Consensus Estimate for 2018 is $3.18 per share, with earnings expected to increase 3.92% from the year ago period.
Bottom Line
Investors like dividends for many reasons; they greatly improve stock investing profits, decrease overall portfolio risk, and carry tax advantages, among others. However, not all companies offer a quarterly payout.
Big, established firms that have more secure profits are often seen as the best dividend options, but it's fairly uncommon to see high-growth businesses or tech start-ups offer their stockholders a dividend. Income investors have to be mindful of the fact that high-yielding stocks tend to struggle during periods of rising interest rates. With that in mind, O presents a compelling investment opportunity; it's not only an attractive dividend play, but the stock also boasts a strong Zacks Rank of #2 (Buy).
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>>> Equinix, Inc. (Nasdaq: EQIX) connects the world's leading businesses to their customers, employees and partners inside the most-interconnected data centers. In 52 markets across five continents, Equinix is where companies come together to realize new opportunities and accelerate their business, IT and cloud strategies. <<<
https://finance.yahoo.com/quote/EQIX/profile?p=EQIX
Equinix EQIX, -0.62% runs data centers in the U.S., Japan and Europe, providing cloud services to more than 9,800 companies.
>>> Is the REIT bloodbath finally a buying opportunity?
By Andrea Riquier
Apr 2, 2018
Malls are a ‘distressed’ play for some investors, while jumping on the housing shortage attracts others
Buying opportunity or value trap?
https://www.marketwatch.com/story/is-the-reit-bloodbath-finally-a-buying-opportunity-2018-03-28?siteid=bigcharts&dist=bigcharts
In December MarketWatch took a balanced view on investing in real estate investment trusts. REITs may be “cheap enough to warrant another look,” we wrote then.
The pro-REIT camp liked the macro fundamentals underpinning the investment — not to mention their cheap relative valuations — believing that those factors outweighed concerns about rising interest rates, investor disinterest and the Amazon AMZN, +1.33% effect that’s been clearing out the traditional shopping malls that anchor many of these funds.
Since then REITs have gotten even cheaper, and are now luring some analysts who’d shied away before.
The Vanguard Real Estate ETF VNQ, +1.05% is down about 9% for the year to date, worse than the 2% decline for the S&P 500 SPX, +1.16% . Shares of the PowerShares KBW Premium Yield ETF, meanwhile, have lost more than 12% so far in 2018.
REITs have been beaten down enough that Rick Daskin, an investor who in December told MarketWatch he was staying away, is now interested. Back then, Daskin, who serves as president of RSD Advisors, and subadvises Cumberland Advisors on MLP strategy, thought interest-rate risk was just too strong to make REITs, which depend on borrowing, attractive.
Now, he said, “relative to bonds and other things it looks to me like they present some opportunity. Retail REITs have gotten absolutely destroyed, and some are at a level where they’re near-distressed. And they may be superior to bonds because you’re scraping up more yield. The risk-reward might be coming more into focus.”
Within the retail sector, Daskin said, he’d concentrate on class “A” malls, those with higher foot traffic than lower-rated properties and with strong tenants.
“I don’t think you want to play at the bottom of the barrel,” he said.
A mall REIT that fits that description and is popular among analysts surveyed by FactSet is Simon Property Group, Inc. SPG, +1.33% , which has a mean overweight rating and a price target about 19% higher than current trading levels.
Another area he’d consider is health care, which is less sensitive to the economic cycle.
But as with so many considerations surrounding REITs, the specific details seem to trump the logic of the fundamentals.
Sabra Health Care REIT, Inc. SBRA, +2.23% , down about 7.5% for the year to date, has an overweight rating among FactSet analysts and a target price of $20.60, nearly 20% higher than current trading levels. Sabra has strong geographic diversification across the U.S., and properties in senior living, skilled nursing and specialty hospitals. It also boasts a dividend yield of 10.3%.
Still, in a recent note, Raymond James analysts wrote that Sabra’s “discounted valuation” was “attractive,” but that they were still “staying on the sidelines.”
“Skilled nursing facilities continue to face challenging fundamentals (decreasing lengths of stay, pressure on reimbursement rates, increasing regulatory pressures, difficult labor market),” they added. “While the ‘aging of America’ and massive demographic shift will eventually overcome these headwinds, we have yet to see an inflection in skilled nursing occupancies that would warrant a more favorable outlook for the stock.”
In contrast, Michael Underhill, chief investment officer at Pewaukee, Wis.-based Capital Innovations, LLC was bullish on REITs in December. While Underhill still believes most investors could benefit from some exposure to real estate in the form of REITs, he advocates being “surgical” about which to pick.
Underhill likes single-family rental REITS as a housing call. “We’ve got a housing shortage and you don’t have enough product and that’s holding back the buyers,” he said. “The single-family rental space in the mid-market to lower mid-market will be interesting because those types of buyers don’t have a significant amount of wealth put aside to purchase. The consumer will be renting rather than buying out of necessity.”
Read: We’re still building the wrong kind of homes for renters
Invitation Homes INVH, +0.31% is the leader in the single-family rental space, with about 82,000 homes of the roughly 200,000 held by institutional investors. The stock has a buy rating among FactSet analysts and a target price of $25.86, 14% higher than its Wednesday trading levels.
Outside of housing, Underhill isn’t buying the retail thesis. “We’re not buyers at these levels,” he told MarketWatch. “They could be a value trap. I don’t feel comfortable going into a sector that’s seeing a once-in-a-generation transition. Conversely, health care, that’s not a value trap, that’s growth on sale.”
Still, just as Daskin thought bonds were a better buy over REITs back in December, some analysts echo that idea now.
“In the near term, interest-rate rises may continue the trend of investors transitioning assets from premium income, higher risk products (like REITs) toward safer income-producing assets (bonds). Therefore, we are not adding to our REIT allocations at this time,” Jeremy Bryan, portfolio manager at Gradient Investments, told MarketWatch.
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>>> Equinix, Inc. (Data center REIT) is an American multinational company headquartered in Redwood City, California, that specializes in enabling global interconnection between organizations and their employees, customers, partners, data and clouds. The company is the leading global colocation data center provider by market share,[2] and it operates 175+ data centers in 44 major metropolitan areas in 22 countries on five continents.
Equinix was founded in 1998 to provide a neutral place where the networks forming the early internet could exchange data traffic. It expanded to Asia-Pacific in 2002[3] and Europe in 2007.[4] The company later began operating facilities in Latin America in 2011[5] and in the Middle East in 2012.[6] Its purchase of TelecityGroup in early 2016 established the company as the largest colocation provider in Europe.[7] In May 2017, Equinix completed the purchase of 29 Verizon data centers in a move to expand its presence across 15 markets in the U.S. and Latin America.[8]
The company offers colocation, interconnection solutions and related services to enterprises, content companies, systems integrators and 1,500+ network service providers worldwide. Equinix data centers host more than 2,750 cloud and IT service providers. Equinix offers several interconnection services, including Equinix Cross Connects, Equinix Performance Hub and Equinix Data Hub. The company operates the Equinix Cloud Exchange and an Internet Exchange. Its Professional Services group offers various consulting and technical support services.
Equinix says its broad geographic reach is a key differentiator that allows its customers to place equipment in proximity to their end users worldwide, which the company claims results in superior connectivity. Its global data center platform, which it calls Platform Equinix, is one of three components of a triple-ringed “moat”[9] the company says it must maintain to continue to outpace its competitors. It says the other two components are the interconnected industry ecosystems that populate its data center platform and its commitment to service excellence.[10]
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https://en.wikipedia.org/wiki/Equinix
>>> Here’s how to invest in real estate — think Warren Buffett-style, not shopping malls
By Sara Sjolin
June 27, 2017
http://www.marketwatch.com/story/heres-how-to-invest-in-real-estate-think-warren-buffett-style-not-shopping-malls-2017-06-27?siteid=bigcharts&dist=bigcharts
Hang out in data centers, not malls.
So, where to invest for the second half? Well, there’s lots of chatter about real estate investment trusts, aka REITs, after yesterday’s news that Warren Buffett has taken a big stake in Store Capital STOR, -0.26% .
REITs can yield big profits — but only if you know which ones to buy, say Bespoke Investment Group analysts for our call of the day.
“While the shopping mall REITs have been tanking, the REITs that lease out warehouses to tech companies that need space to house all of their servers and cloud data have been surging,” Bespoke’s team says.
“The ten best-performing REITs in 2017 are all in strong uptrends, with the exception of GEO and QCP. If you’re a trend investor, you’ll like these charts,” the analysts add. (They’re referring to Geo Group GEO, -2.96% and Quality Care Properties QCP, -0.72% .)
In other words, tech-exposed and health-care real-estate stocks have had a stellar start to the year and are likely to keep going up. Traditional retail real estate such as malls, however, face “Death by Amazon” as shoppers shift online. That means investors should avoid that type of building, according to Bespoke.
“While there has been lots of brainstorming about what to do with malls that often look like ghost towns these days, we haven’t seen any convincing ideas yet (except maybe turning them into tech data centers!),” the analysts say.
One of Bespoke’s picks also gets praise from Forbes and Seeking Alpha scribe Brad Thomas, who singles out CareTrust CTRE, -0.81% as a “REIT gem” set for relatively speedy earnings growth.
As for Buffett’s REIT pick, that’s along the lines of what Bespoke is backing — less than 20% of Store’s portfolio is in traditional retail.
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>>> CareTrust REIT, Inc. is a self-administered, self-managed real estate investment trust. The Company is engaged in the ownership, acquisition and leasing of healthcare-related properties. It makes investments in healthcare-related real estate assets. As of December 31, 2016, its real estate portfolio included 154 skilled nursing facilities (SNFs), SNF Campuses, assisted living facilities and independent living facilities. As of December 31, 2016, the 93 facilities leased to The Ensign Group, Inc. had a total of 9,916 beds and units and are located in Arizona, California, Colorado, Idaho, Iowa, Nebraska, Nevada, Texas, Utah and Washington; the 16 facilities leased to affiliates of Pristine Senior Living, LLC had a total of 1,488 beds and units; and the 42 remaining leased properties had a total of 3,515 beds and units and are located in California, Colorado, Florida, Georgia, Idaho, Indiana, Iowa, Maryland, Michigan, Minnesota, North Carolina, Texas, Virginia, Washington and Wisconsin. <<<
>>> STORE Capital Corporation is an internally managed net-lease real estate investment trust. The Company is engaged in the acquisition, investment and management of single tenant operational real estate (STORE) properties. As of December 31, 2016, the Company owned a portfolio that consisted of investments in 1,660 property locations operated by 360 customers across 48 states. Its customers operate across a range of industries within the service, retail and manufacturing sectors of the United States economy, with restaurants, early childhood education centers, movie theaters, health clubs and furniture stores. The Company's portfolio includes investments in approximately 1,330 property locations operated by over 300 customers across approximately 50 states. The Company provides real estate financing solutions principally to businesses that own STORE properties and operate within the broad-based service, retail and industrial sectors of the United States economy. <<<
>>> Is all the talk of the death of the mall overdone?
By Ciara Linnane
June 8, 2017
http://www.marketwatch.com/story/is-all-the-talk-of-the-death-of-the-mall-overdone-2017-06-05?siteid=bigcharts&dist=bigcharts
Consumers still enjoy shopping as a leisure activity, and many online sales are connected with a store visit, says Fitch
Talk of the demise of the shopping mall may be overdone, according to Fitch Ratings, which on Monday took a neutral stance on retail REITS, or real estate investment trusts, the entities that own and manage malls and rent space to tenants.
Mall REITs are popular with investors for their attractive dividend yields. But the sector has come under pressure this year amid a wave of closure announcements from department store chains, sporting retailers and teen clothing retailers, among others. The retail sector is going through a period of severe retrenchment as it responds to the challenge from Amazon.com Inc. AMZN, -0.38% as well as changing consumer behavior and spending habits.
In case you missed it: From a risk-of-bankruptcy standpoint, the retail business is the new oil and gas
But Fitch is upbeat that bricks-and-mortar stores will continue to exist and attract shoppers, despite the inroads made by Amazon into just about every category. The ratings agency expects that about 70% of retail sales will still take place in a physical store in 2020, down from 80% today.
“Consumers by and large still enjoy shopping as a leisure activity, plus a significant portion of online sales are connected with a store visit,” Fitch Managing Director Steven Marks wrote in the first issue of the agency’s new Equity REIT Handbook.
Read: Weaker shopping malls leave mortgage-backed securities vulnerable
Some mall REITS, particularly class B, will struggle to grow rents as they lose tenants, he said. But Fitch is overall neutral on the sector, a position that is considerably less bearish than others.
Outside of retail, REITS in the office and industrial space have healthier fundamentals and can expect to perform better, said Marks. A softening of demand for space is not expected to pressure rents, while jobs growth should buoy tech employment-oriented markets.
Separately, Canaccord published a bullish note on prison REITs Monday, saying the pro-private, tough-on-crime policies of the current administration along with plans to reform immigration policy will benefit that sector. In February, Attorney General Jeff Sessions said he was reversing former President Barack Obama’s plan to phase out private prisons, arguing that it had hurt the government’s ability to meet the future needs of the federal prison system.
Obama had argued that private prisons are less safe than government-run ones.
“We believe the administration’s pursuit of additional ICE beds, in addition to capacity constraints and/or state reforms pushing for alternative corrections, create a material external growth opportunity,” said Canaccord analyst Michael Kodesch. “Furthermore, we see low risk to contract renewals in this environment across the board, with the continued exception that we are cautiously watching CoreCivic’s California out-of- state populations. “
Kodesch has a buy rating on prison REITS Core-Civic Inc. CXW, +0.50% and Geo Group Inc. GEO, +0.77% Core-Civic was trading down 1.1%, while GEO was down 0.4%.
Among mall REITs, AvalonBay Communities Inc. AVB, +0.33% was up 1.2% and Equity Residential EQR, +0.12% was up 0.6%, while Vornado Realty Trust VNO, -0.47% was up 0.1%.
Among the decliners, Taubman Centers Inc. TCO, -0.92% was down 1.2%, Public Storage PSA, -0.06% was down 1% and Prologis Inc. PLD, -0.17% fell 0.6%.
The AMG Managers CenterSquare Real Estate Fund MRESX, -0.54% , which has about $361 million in assets and a four-star ranking from Morningstar, was up 1% and has gained 0.6% in 2017, while the S&P SPX, +0.51% as gained about 9%.
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>>> What’ll Happen to US Commercial Real Estate as Chinese Money Dries Up? See Manhattan.
by Wolf Richter
Jul 17, 2017
http://wolfstreet.com/2017/07/17/what-happens-so-u-s-commercial-property-as-chinese-money-dries-up/
In the second quarter in Manhattan, Chinese entities accounted for half of the commercial real estate purchases with prices over $10 million. By comparison, in 2011 through 2014, total cross-border purchases from all over the world (not just from China) were in the mid-20% range.
“At a time when domestic investors have pulled back, foreign parties have ramped up their holdings in Manhattan,” according to Avison Young’s Second Quarter Manhattan Market Report.
This includes the $2.2 billion purchase in May of 245 Park Avenue by the Chinese conglomerate HNA Group, the sixth largest transaction ever in Manhattan. And at $1,282 per square foot, it was “among the highest price per pound for this type of asset.”
The purchase of the 45-story trophy tower is being funded in part by money borrowed in the US via a $508 million loan from JPMorgan Chase, Natixis, Deutsche Bank, Barclays, and Societe Generale, according to CommercialCafé. The rest is funded by HNA’s other sources, presumably in China.
The influx of Chinese money and the propensity by Chinese companies to hunt down trophy assets have propped up prices in Manhattan. And yet, despite the Chinese hunger, total sales volume has plunged, according to Avison Young:
At the end of the first half of 2017, the annualized forecast of total transaction volume was on pace to be 40% lower than 2016, and a 60% drop-off from 2015. At the current pace, 2017 is shaping up to have the lowest sales count since the period from 2008 to 2010, the last market trough.
Dollar volumes tell a similar story at the year’s halfway mark. The first quarter’s $3.2 billion in dollar transactions was improved to $5.6 billion in the second quarter, but this increase was largely attributable to a single $2.2 billion purchase while the first quarter lacked any billion dollar transactions.
From the third quarter of 2013 through the second quarter of 2016, the Manhattan market averaged 141 transactions per quarter and never recorded less than 112 in that 12-quarter span. In the trailing four quarters ending 2Q 2017, the average transaction count dropped to 71, with the most recent tally [in Q2] at 66 for this second quarter.
This chart by Avison Young shows the peak in 2015 and the plunge since (click to enlarge):
That’s the gloomy data on investment activity. Office leasing activity, the underpinning of the office market, isn’t exactly booming either. According to Avison Young’s report, office leasing volume in the second quarter plunged 32% year-over-year to 5.0 million square feet.
Both in Midtown and Downtown, leasing volume in Q2 plunged 35%. In Midtown, the vacancy rate rose to 11.0%, up from 10.1% a year ago; Downtown, it rose to 12.1%, up from 10.4% a year ago.
So the Chinese money is sorely needed to prop up the market. “Since the beginning of 2013, Chinese companies alone have poured nearly $18 billion into Manhattan real estate,” the report says, but cautions: “This flow of funds, however, may soon be threatened.”
Last year, the Chinese government got serious about imposing capital control. This year, it’s trying to crack down on lenders to get a grip on the ballooning risks threatening its financial system.Just over the weekend, top Chinese authorities struggled at the National Financial Work Conference with the rampant risk-taking and leverage. The Wall Street Journal:
Fear permeated markets, which tumbled Monday after President Xi Jinping gave a speech that supported efforts to tamp down complicated lending along with other financial-system risks. Frightened investors – seeing room for yet more policy tightening after cheery GDP growth data – are now searching for signs of the regulators’ next hit.
At hand is an ever-growing asset-management industry – now around 60 trillion yuan ($8.8 trillion) – and the deepening nexus of banks, brokers, trusts and insurance companies. The central bank elaborated on the linkages it uncovered in the asset-management industry in its recently published financial-stability report. That is likely telling of where regulators will go digging.
If regulators do take on the asset-management business, it could spell trouble for corporate borrowers. Corporate bonds account for more than 40% of underlying assets in wealth-management products sold by banks. Asset managers have been the only active buyers of these bonds so far this year.
On Monday, following the conference, the Shanghai Composite Index dropped 1.4%, and the small-cap index, ChiNext, which includes a lot of tech companies, plunged 5.1%, to the lowest level since January 2015.
China’s crackdown on leverage and fund-flows already had some consequences in the US and elsewhere: quashing a slew of Chinese cross-border deals, including Anbang Insurance Group’s $14 billion bid to acquire Starwood Hotels & Resorts.
These efforts by Chinese authorities to get financial risks and capital flows under control could have the effect, according Avison Young’s report, that “the major Chinese players may be regulated out of the market.” And with Manhattan being “a primary target for funds, it is likely to experience the greatest impact.”
This will happen just when domestic buyers have lost their appetite for overpriced commercial real estate after a breath-taking seven-year boom. The report identified “near-term impediments” to the commercial property market, among them:
•“Chinese governmental regulations on capital allocations outside the country.”
•“General investor sentiment.”
•“Rising interest rates.”
•Pre-recession 10-year commercial mortgages that have been packaged into Commercial Mortgage Backed Securities that are now struggling to refinance. Ratings agencies have also been warning about CMBS.
•“Slumping residential market, slow condo sales, and heavy concessions in rental market” as asking rents have been declining.
•“Dearth of construction financing and stalled construction sites needing funding.”
•“E-retail depressing brick-and-mortar retail values.” This meltdown has reached the Crown Jewel in American retailing as seen in haunting photos of Shuttered Stores on Madison Avenue
But unlike last time, there’s no Financial Crisis tripping up the property market. Stocks and bonds are booming. Wall Street is exuberant. There’s “no catastrophic event causing the current correction,” as the report explains. In other words, these are still the best of times.
And it’s not just in Manhattan. Chilling photos of for-lease signs are lining the Great America Parkway in Santa Clara, Silicon Valley. Read… Silicon Valley Begins to Crack Visibly
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>>> These dividend stocks are down a lot, but there’s plenty of cash flow to raise payouts
By Philip van Doorn
June 23, 2017
http://www.marketwatch.com/story/these-dividend-stocks-are-down-a-lot-but-theres-plenty-of-cash-flow-to-raise-payouts-2017-06-21?siteid=bigcharts&dist=bigcharts
Here are some possible bargains for income-seeking investors willing to consider contrarian plays
Shares of Kohl’s are down 27% this year, but the stock has a dividend yield above 6% and plenty of excess free cash flow to support a higher payout.
The S&P 500 index is up 9% so far in 2017, but there are losers in any market. And that’s where you might find long-term bargains, along with the expected batch of companies facing painful secular declines.
Two groups of companies that are particularly out of favor are brick-and-mortar retailers and real estate investment trusts that own malls or shopping centers. The reason for these groups’ pain is obvious: Amazon.com Inc. AMZN, +0.24% continues to dominate the rapidly growing online retail industry and grab business from traditional retailers.
But some of these plays still have attractive dividend yields and plenty of free cash flow to support higher payouts. A company’s free cash flow is its remaining cash flow after planned capital expenditures. We can calculate a “free cash flow yield” by looking at the last 12 months’ free cash flow per share and dividing it by the current share price. If the free cash flow yield exceeds the dividend yield, a company has “headroom” to raise dividends, or buy back stock, or make acquisitions or other expansions of their businesses, all of which can boost stock prices over the long term.
For REITs, we used funds from operations (FFO) instead of free cash flow, because FFO is generally considered the best way to measure a REIT’s ability to pay dividends. FFO adds depreciation and amortization back to earnings, while subtracting gains from the sale of assets.
Among the S&P 500 SPX, +0.16% 76 stocks were down at least 10% this year through June 20. Among these 76, a dozen have dividend yields above 3.5% and free cash flow headroom.
Here’s the list, sorted by dividend yield:
Company Ticker Industry Dividend yield Free cash flow yield - past 12 reported months ‘Headroom’ Price change - 2017 through June 20
Macy’s Inc. M, +0.81% Department Stores 6.83% 21.63% 14.80% -38%
Kimco Realty Corp. KIM, +0.78% Real Estate Investment Trusts 6.14% 7.44% 1.31% -30%
Kohl’s Corp. KSS, +2.01% Department Stores 6.11% 20.24% 14.13% -27%
Oneok Inc. OKE, +2.93% Oil and Gas Pipellines 5.18% 8.85% 3.67% -17%
Macerich Co. MAC, +0.51% Real Estate Investment Trusts 4.93% 7.12% 2.19% -19%
Target Corp. TGT, +0.26% Discount Stores 4.87% 16.78% 11.91% -30%
L Brands Inc. LB, +1.15% Apparel/ Footwear Retail 4.58% 6.95% 2.37% -20%
Simon Property Group Inc. SPG, -0.14% Real Estate Investment Trusts 4.28% 6.67% 2.39% -11%
Qualcomm Inc. QCOM, +0.78% Telecom. Equipment 4.01% 6.60% 2.59% -13%
People’s United Financial Corp. PBCT, +0.06% Savings Banks 3.95% 6.05% 2.10% -10%
Western Union Co. WU, +2.08% Data Processing Services 3.69% 9.32% 5.62% -13%
Regency Centers Corp. REG, +1.31% Real Estate Investment Trusts 3.55% 5.66% 2.11% -13%
Source: FactSet
All four REITs on the list own shopping centers and/or malls.
You can click on the tickers for additional information, including news, price-to-earnings ratios, estimates and ratings.
As with any “first screen” of stocks, the list is meant to spur further discussion as you consider whether any of these companies might be worth considering as an investment, especially if you crave dividend income.
It’s obvious that many of these companies are out of favor, as they face major challenges to their business models. But that doesn’t mean none will survive or even thrive over the long term.
If you see any names of interest here, your next step, as always, should be to do your own research, preferably with the assistance of your broker or investment adviser, to form your own opinions about the companies’ long-term prospects.
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>>> Kimco Realty -
https://www.fool.com/investing/2017/05/31/3-beaten-up-dividend-stocks-are-they-bargains.aspx?yptr=yahoo
5-31-17
Shopping center REIT Kimco Realty (NYSE:KIM), like the two other stocks mentioned here, hasn't performed too well in 2017. And it certainly makes sense, as many retailers that primarily operate in shopping centers -- such as Kmart, h.h. gregg, and Payless Shoe Source -- have all announced massive store closures in 2017.
However, the impact on Kimco has been minimal -- in fact, the loss due to these closures represents just 0.3% of Kimco's rental income.
Kimco's strategy is to operate in a little over 20 core markets, and to maintain a high level of tenant diversity. Kimco has 517 properties containing 84 million square feet of space, and 80% of the rent they generate is in these core markets. No more than 3.5% of the company's revenue comes from any single tenant, and the top tenants are made up of recession- and e-commerce-resistant businesses.
For example, discount retailers such as TJX, Ross Stores, Wal-Mart, and Dollar Tree, all of which are among Kimco's top 15 tenants, tend to do just fine during tough times, as customers seek bargains. Retailers such as Albertsons and PetSmart sell things people need, not just things people want. These are just a few examples of Kimco's roughly 4,000 individual tenants, but the point is that the company isn't too vulnerable to traditional, discretionary retail businesses closing stores.
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>>> Retail Meltdown Demolishes Mall Investors
by Wolf Richter
May 9, 2017
http://wolfstreet.com/2017/05/09/retail-meltdown-demolishes-mall-reit-investors/
Even the biggest.
The closure of thousands of retail chain stores last year and this year, with many more to come – from big anchor tenants such as Macy’s to smaller stores such as Payless Shoes – and the bankruptcies and debt restructurings ricocheting through the industry are having an impact on retail malls. And mall investors – that may include your retirement account – are getting crushed.
The commercial real estate industry has been claiming that these shuttered retail spaces are being converted into restaurants or fitness centers or smaller shops or whatever. And zombie malls are leasing out their parking lots to car dealers to store their excess new vehicle inventory, and that everything is going to be fine.
But investors in publicly traded Real Estate Investment Trusts that were for years among the stars in the S&P 500 are voting with their feet.
It’s not that these REITs are doing all that badly on an operational basis. They’re hanging in there. But many of the announced store closings and bankruptcies haven’t worked their way through the pipeline.
Shares of these REITs all peaked together at the very end of July 2016 and have since then plunged in unison.
Kimco Realty Corp (KIM) says it’s “one of North America’s largest publicly traded owners and operators of open-air shopping centers,” with “interests” in 517 shopping centers with 84 million square feet of retail space in 34 states and Puerto Rico. Shares fell 2.6% to $19.42 on Monday and 13% over the past month. They’re down 40% from the peak of $32.23 at the end of July 2016:
Macerich (MAC), with 54 million square feet of retail space at 48 regional shopping centers, calls itself “one of the country’s leading owners, operators and developers of major retail real estate.” It disclosed that revenues in Q1 fell 3.5% year-over-year, and that mall portfolio occupancy edged down to 94.3%, from 95.1% a year earlier.
It’s starting to feel the pain, but it’s not the end of the world. But its shares dropped 2.5% on Monday and 8.3% over the past month. They’re down 36% from the peak at the end of July, 2016:
Simon Property Group (SPG), “the world largest publicly traded real estate company,” as it says, fell 1% to $162.84 on Monday and 7% over the past month. It’s down 29% since the peak at the end of July. And this despite a massive share buyback program, that included buying back 870,692 shares in Q1:
GGP, formerly General Growth Properties, is also trying to use share buybacks to prop up its share price. In Q1, it bought back 2.57 million shares for $59.6 million. Nevertheless, shares fell 12% over the past month to $22.19 as of Monday and are down 30% from the peak at the end of July:
Federal Realty Investment Trust (FRT) has 98 malls with a total of 23 million square feet of retail space in “major coastal markets.” It also has over 1,800 apartments. So you gotta get creative during tough times. In its Q1 earnings report, it said:
March 28, 2017 – Federal Realty announced its exclusive partnership with Freight Farms, a Boston-based company that retrofits shipping containers with vertical farming technology capable of growing acres’ worth of produce in a fraction of the space of traditional farms. The partnership empowers anyone to use this technology while repurposing Federal Realty’s unused parking spaces as a place to locally and sustainably produce food that benefits the shopping centers’ tenants, customers, and community.
Its shares fell 1.8% on Monday and 3% over the past month. They’re down 24% from the peak at the end of July 2016:
Regency Centers Corp (REG), with 429 shopping centers totaling 57.2 million square feet of retail space, focuses on “grocery-anchored retail centers located in the most attractive U.S. markets.” Its shares fell 1.9% to $61.49 on Monday and 8% over the past month. They’re down 28% from the peak at the end of July:
This is how the brick-and-mortar pain is translating into pain for mall-REIT investors. But why have share prices gotten crushed when, operationally, the REITs are still hanging in there and are paying fat dividends? That can best be answered by a look at the meteoric rise of those shares over the years leading up to July 2016.
Some of the share prices more than doubled over those years, as part of the commercial property bubble that got so huge that the Fed keeps publicly fretting about it, naming it as one of the reasons for raising interest rates, precisely to tamp down on the valuations. The Fed is worried that an implosion of these inflated commercial property values can take down the banks.
Mall REITs were part of this inflated commercial property universe, and they soared with it. That entire universe is now peaking. But separately, mall REITs are also caught up in the relentless brick-and-mortar retail meltdown, as online shopping is taking over. This is a structural shift that will continue to progress. Mall owners are already trying to find a way to “repurpose” their malls. But this isn’t going to be smooth.
As so many times, Private Equity firms are in the thick of it. Read… I’m in Awe of How Fast Brick-and-Mortar Retail is Melting Down
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Beacon Roofing Supply - >>> Small-cap fund manager tunes out market ‘noise’ in bid to find quality companies
By Philip van Doorn
Feb 18, 2017
http://www.marketwatch.com/story/small-cap-fund-manager-tunes-out-market-noise-in-bid-to-find-quality-companies-2017-02-16?siteid=yhoof2
Bassett, who helps manage the $1.7 billion Aberdeen U.S. Small Cap Equity Fund from Philadelphia, shared three of his favorite stocks held by the fund in an interview Feb. 14:
Beacon Roofing Supply
Beacon Roofing Supply Inc. BECN, of Herndon, Va., has a market value of $2.7 billion. The company grew its sales per share by 36% during 2016, according to FactSet.
“We have always liked how they were able to consolidate a fragmented industry,” Bassett said. In October 2015, the company completed the acquisition of Roofing Supply Group, which Bassett said was its largest private competitor.
“That has given them the ability to leverage back-office costs, distribution, technology, etc., allowing them to [improve] economies of scale,” he said, adding that a reduction in debt has set up further margin improvement. This makes the company “slightly less dependent on macro factors” over the next two years, Bassett said.
Beacon’s shares closed at $45.32 on Feb. 14 and traded for 16.9 times the consensus 2018 earnings estimate of $2.69 a share, among analysts polled by FactSet.
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>>> Beacon Roofing Supply, Inc., together with its subsidiaries, distributes residential and non-residential roofing materials, and other complementary building materials to contractors, home builders, retailers, and building materials suppliers. The company?s residential roofing products include asphalt shingles, synthetic slates and tiles, clay and concrete tiles, slates, nail base insulations, metal roofing, felts, synthetic underlayment, wood shingles and shakes, nails and fasteners, metal edgings and flashings, prefabricated flashings, ridges and soffit vents, and other accessories. Its non-residential roofing products comprise single-ply roofing, asphalt, metal, modified bitumen, and build-up roofing products; cements and coatings; flat stock and tapered insulations; commercial fasteners; metal edges and flashings; smoke/roof hatches; roofing tools; sheet metal products, including copper, aluminum, and steel; and PVC, thermoplastic olefin, and ethylene propylene diene monomer membrane products. The company also provides complementary building products, such as vinyl, wood, and fiber cement sidings; and stone veneers, windows, doors, skylights, and gutters and downspouts, as well as decking and railing, water proofing, building insulation, and millwork products. In addition, it offers value-added services primarily, including advice and assistance on product identification, specification, and technical support; job site delivery, rooftop loading, and logistical services; tapered insulation design and related layout services; metal fabrication and related metal roofing design and layout services; trade credit; and marketing support for contractors. As of September 30, 2016, the company operated through a network of 368 branches in 46 states of the United States and 6 provinces in Canada. Beacon Roofing Supply, Inc. was founded in 1928 and is headquartered in Herndon, Virginia. <<<
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