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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. <<<
>>> Apogee Enterprises, Inc. designs and develops glass solutions for enclosing commercial buildings and framing art in the United States, Canada, and Brazil. The company operates through four segments: Architectural Glass, Architectural Services, Architectural Framing Systems, and Large-Scale Optical Technologies (LSO). The Architectural Glass segment fabricates coated and high-performance glass used in customized windows and wall systems comprising the outside skin of commercial, institutional, and multi-family residential buildings. The Architectural Services segment designs, engineers, fabricates, and installs the walls of glass, windows, and other curtain wall products making up the outside skin of commercial and institutional buildings. The Architectural Framing Systems segment designs, engineers, fabricates, and finishes the aluminum frames used in customized aluminum and glass windows, curtain walls, storefronts, and entrance systems comprising the outside skin, as well as entrances of commercial, institutional, and multi-family residential buildings. The LSO segment manufactures value-added glass and acrylic products for the custom picture framing and fine art markets. The company?s products and services are primarily used in commercial buildings, such as office towers, hotels, and retail centers; and institutional buildings, including education facilities and dormitories, health care facilities, and government buildings, as well as multi-family buildings. It markets its architectural products and services through direct sales force, independent sales representatives, and distributors to general contractors and glazing subcontractors, architects, and building owners; and value-added glass and acrylics through retail chains, picture framing shops, and independent distributors to museums, and public and private galleries. Apogee Enterprises, Inc. was founded in 1949 and is headquartered in Minneapolis, Minnesota <<<
>>> Evictions by Wall-Street Mega-Landlords Soar, Financialization of Rents Cause “Housing Instability”: Atlanta Fed
by Wolf Richter
Jan 7, 2017
http://wolfstreet.com/2017/01/07/evictions-by-wall-street-mega-landlords-soar-financialization-of-rents-cause-housing-instability-atlanta-fed/
It blames the Fed & Bernanke; the dark side of “healing” the housing market.
The housing collapse during the Financial Crisis keeps on giving. On Friday, Invitation Homes, a creature of private-equity firm Blackstone, and largest landlord of single-family rental homes in the US, filed with the SEC to raise up to $1.5 billion in an IPO. Deutsche Bank, JP Morgan, BofA Merrill Lynch, Goldman Sachs, Wells Fargo, Credit Suisse, Morgan Stanley, and RBC Capital Markets are the joint bookrunners and get to cash in on the fees.
Invitation Homes, founded in 2012, now owns 48,431 single-family homes, according to the filing. It bought them out of foreclosure and turned them into rental properties, concentrated in 12 urban areas. Revenues for the nine months through September 30 rose 11.4% to $655 million, producing a net loss of $52 million. It lists $9.7 billion in single-family properties and $7.7 billion in debt.
Blackstone was a pioneer in the post-Financial Crisis buy-to-rent scheme, including issuing the first rent-backed structured securities in November 2013. The collateral for the $479-million deal was rental income from 3,207 homes. Blackstone paid rating agencies Moody’s, Kroll, and Morningstar to rate the bonds; so nearly 60% of the debt was rated AAA. Other tranches carried lower ratings. The overall cost of capital to Blackstone from the securitization of these rents was about 2.01%. Cheap money! Thank you hallelujah QE and ZIRP.
Rent-backed securities have since become a common funding mechanism.
Other players in the buy-to-rent scheme have already gone public. American Homes 4 Rent, which owns about 48,000 rental houses in 22 states, went public in August 2013. It has produced a net loss every year since, sports negative EPS of -25 cents and a negative PE ratio of -84.
Starwood Waypoint Residential Trust was spun off from Starwood Property Trust Inc. and started trading in February 2014. In 2016, it merged with Thomas Barrack’s Colony Capital and changed its name to Colony Starwood Homes. Colony is now the third-largest single-family landlord. It too has lost money every year since going public, has negative EPS of -47 cents and a negative PE ratio of -62. Colony founder Barrack is now chairman of Trump’s inauguration committee.
But there’s a drawback: 32% of Colony’s properties in Atlanta and adjacent suburbs have eviction filings, by far the highest rate among the Wall Street landlords, according to a study by the Atlanta Fed on the impact of Wall Street landlords on surging “housing instability.”
The report doesn’t name names, but Ben Miller, co-author of the report, filled in the blanks for Bloomberg. Next in line in eviction rates: American Homes 4 Rent, HavenBrook, owned by Pimco, and Invitations Homes. The percentage of properties with eviction filings in Atlanta by the largest Wall-Street landlords:
The report indicated that eviction rates in some other cities are lower. But this being the Atlanta Fed, it focused on Atlanta, one of the hotbeds of the buy-to-rent scheme. And it focused on single-family rentals because Wall Street’s muscling into this space is new and perhaps a generational shift in the US housing market.
So how did this Wall Street landlord nirvana – and the ensuing “housing instability” – come about after the housing bust? The report blames the Fed, and Fed Chairman Ben Bernanke:
In unwinding their bank-owned properties, the GSEs [Fannie Mae, Freddy Mac, etc.], U.S. Treasury, and Federal Reserve innovated new structured transactions for disposing of hundreds of thousands of bank-owned homes, also known as real estate owned (REO). The Federal Reserve was the first to suggest that private equity firms were the one group with cash on hand to invest in foreclosed homes (Bernanke, 2012).
In 2012, the Federal Housing Finance Agency (FHFA), conservator of the GSEs, issued a pilot to develop structured transactions that could be used to sell its REO homes in bulk. The private market followed by developing and standardizing financial instruments to allow broader market investment in converting foreclosed homes into single-family rentals. Rental housing, traditionally the purview of mom-and-pop landlords, caught the attention of large financial firms.
Nationwide, an estimated 350,000 homes were purchased by institutional investors from 2011 to 2013, and these were spatially concentrated in cities like Atlanta with high numbers of bank-owned homes and the prospect of future home price appreciation. Today there is high concentration in the single-family rental business, with an estimated 170,000 single-family rental homes owned by the seven largest firms.
“My hope was that these private equity firms would provide a new kind of rental housing for people who couldn’t – or didn’t want to – buy during the housing recovery,” Elora Raymond, the report’s lead author, told Bloomberg. “Instead, it seems like they’re contributing to housing instability in Atlanta, and possibly other places.”
Evictions are cheap in Atlanta: about $85 in court fees and another $20 to have the tenant ejected, report co-author Michael Lucas told Bloomberg, which added: “With few of the tenant protections of places like New York, a family can find itself homeless in less than a month.”
The report points at the broader implications beyond poor neighborhoods: While “evictions are highly correlated with neighborhood characteristics such as education levels, change in the employment-population rate, and racial composition,” Wall Street landlords still filed for evictions at higher rates than smaller landlords after accounting for “property and neighborhood characteristics.” Why? The report:
One possible reason large corporate landlords backed by institutional investors may have higher eviction filing notices is that they may routinely use eviction notices as a rent collection strategy.
Bloomberg adds:
In interviews and court filings, renters and housing advocates said that some investment firms are impersonal and unresponsive, slow to make necessary repairs and quick to evict tenants who withhold rent because of complaints about maintenance.
“They want to get them out quickly if they can’t pay,” explained Aaron Kuney, a former executive of HavenBrook and now CEO of PE landlord Piedmont Asset Management in Atlanta. “Finding people these days to rent your homes is not a problem.”
Then there’s the expense of housing, which has soared, thanks to the Fed’s efforts to “heal” the housing market. According to the report, 53.4% of renters were “cost burdened in Atlanta” in 2014. More generally, homeownership has declined to a 51-year low, and “demand for rentals has caused urban rents to increase sharply”:
During the 2010 to 2014 period, low-cost rentals in Atlanta declined by more than 15%. Gentrification, or the influx of wealthier residents accompanied by rising property prices and the displacement of existing, lower-income residents, can be a factor in evictions.
The effect of evictions is “housing instability or insecurity”:
Families with insecure or unstable housing may move frequently, suffer eviction, or otherwise be at increased risk of homelessness.
Evictions can result in personal loss of property, trigger job loss, and lead to underperforming schools and poor student outcomes. Even an eviction filing that is resolved can mar a tenant’s credit record and bar that person from renting elsewhere or accessing public assistance.
At the neighborhood level, high eviction rates are associated with poor housing conditions, high rates of school turnover, and neighborhood and community instability.
But it’s not just Atlanta, according to the Atlanta Fed: “There is increasing documentation of an ensuing high rate of evictions in U.S. cities, partly due to tenants’ inability to afford higher rents.”
So is the Fed having second thoughts about its efforts to encourage Wall Street to muscle into the single-family home market in big urban areas, drive up housing costs around the country, and turn rents in to a finanzialized product? I doubt it. Bernanke, the engineer of all this, has moved on; and the Fed, credited with “healing” the housing market, never has second thoughts about its actions.
But the Fed is worried about “real wage” increases. It’s about cheap labor. Read… The Thing in the Jobs Report that Gives the Fed the Willies
57 comments -
Jim Smith
Jan 7, 2017 at 12:54 pm
How do these firms stay in business with negative earnings, is it because they are booking profits on the price increase of their assets-homes.
And as rates go back up, which they will do if their is wage inflation will all these firms have to sell?
Reply
Wolf Richter
Jan 7, 2017 at 1:04
They stay in business because they have access to cheap capital that they can burn with their money-losing operations. Investors support them on the hope that they’re sitting on big capital gains from their home purchases in 2011-2014.
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>>> Top funds for real estate stocks
http://m.kiplinger.com/article/investing/T044-C008-S003-5-reits-to-buy-now-for-income-and-growth.html
If you prefer to buy real estate investment trusts through a fund, you have plenty of choices. One good one is Manning & Napier Real Estate S (symbol MNREX), which holds 56 real estate stocks—mainly REITs such as mall owner Simon Property Group and storage firm Prologis. Over the past five years through June 10, the fund returned 12.4% annualized, beating 93% of its peers. One drawback: annual fees, at 1.09%, are above average.
Fidelity Real Estate Investment (FRESX) returned 12.5% annualized over the past five years. Veteran manager Steve Buller looks for REITs that offer growth at a reasonable price and says he’s emphasizing health care and triple-net-lease REITs these days. The fund yields 2.5% and costs 0.78% in annual expenses.
If you simply want to track the REIT market, buy Schwab U.S. REIT ETF (SCHH), an exchange-traded fund that follows the Dow Jones U.S. Select REIT index, a basket of 96 stocks weighted by market value. Yielding 3.1%, the ETF pays out more than most mutual funds, thanks to a rock-bottom expense ratio of 0.07%.
For ultra-high income, consider iShares Mortgage Real Estate Capped ETF (REM). The fund, which yields 11.0%, invests in mortgage REITs—firms that own real-estate-backed loans. Mortgage REITs could tumble if short-term interest rates climb sharply while long-term rates stay flat or decline (squeezing the REIT’s profit margins). But that looks unlikely over the next year. Annual expenses are 0.48%.
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>>> Sovran Self Storage
http://m.kiplinger.com/article/investing/T044-C008-S003-5-reits-to-buy-now-for-income-and-growth.html
Sales are going strong for Sovran (SSS, $101.91, P/E 18, 3.1%), a self-storage REIT that owns more than 550 properties in 26 states under the Uncle Bob’s brand. The firm is landing customers with its modernized, climate-controlled facilities, many of which are located in high-traffic urban and suburban areas. Occupancy hit 90.5% in the first quarter, up one percentage point from a year earlier. Sovran is also expanding with a $1.3 billion deal, announced in April, to acquire 84 properties from LifeStorage, a privately held firm whose buildings generate higher average rents per square foot than Sovran’s real estate.
Sovran issued 6.9 million shares of stock to finance the LifeStorage deal. That could dilute FFO per share in the near term and lower the REIT’s net asset value per share (the estimated market value of Sovran’s properties, less outstanding debt). Still, analysts see Sovran’s revenue jumping a healthy 17% this year, to $430 million. Sovran recently hiked its annual dividend rate by 11.8%, to $3.80 per share, and it ramped up its 2016 FFO forecast to as much as $5.55 per share, up 14.4% from 2015. Although the stock looks pricey at 18 times FFO, it has room to climb. Bank of America Merrill Lynch, which rates the stock a buy, expects the shares to hit $120 a year from now.
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>>> Realty Income
http://m.kiplinger.com/article/investing/T044-C008-S003-5-reits-to-buy-now-for-income-and-growth.html
Most REITs pay quarterly dividends, but Realty (O, $64.30, P/E 22, 3.5%) shells out cash monthly, paying about 20 cents per share like clockwork. That income arises from Realty’s vast collection of properties: 4,615 buildings, leased mainly to big retailers such as Walgreens and Dollar General. These firms sign long-term triple-net, or NNN, leases with Realty, requiring them to pay for all property taxes, maintenance and insurance.
Although Realty isn’t a high-growth REIT, it’s a solid earner. The firm has paid dividends for a stunning 550 consecutive months. Its 98% property occupancy rate has never slipped below 96%, and revenues are climbing thanks to rent increases built into leases and a steady stream of property acquisitions. Realty expects FFO to rise by as much as 4.3% this year. That should support more growth in the dividend, which Realty has increased at an annualized rate of 4.7% since going public in 1994.
At 22 times FFO, Realty is one of the pricier REITs, and its stock may stay flat in the near term. But stick with it: You can scoop up steady monthly dividends while waiting for the shares to edge higher over the long run.
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>>> Omega Healthcare Investors Inc
http://m.kiplinger.com/article/investing/T044-C000-S015-looking-for-a-high-yield-try-these-3-reits.html?rid=SYN-yahoo&rpageid=15273
High Yield: 6.95%
Investors looking for higher-than-average dividend yields may want to consider REITs that specialize in a niche area. Omega Healthcare Investors Inc (OHI) is one such specialized REIT.
As its name implies, OHI focuses its attention on healthcare-related real estate. Demand for healthcare continues to rise, and as that demand has expanded so has the number of facilities needed to conduct that medical business. That’s were OHI comes in.
Omega provides capital to property owners in order to build their facilities. However, many of OHI’s loans have been in the sale-lease-back style, meaning after a period of time, OHI will buy the building back and the tenant will continue to lease the property from Omega.
The added bonus is that OHI has specialized even further by only focusing on skilled nursing facilities and assisted living facilities. Today, the REIT owns 932 skilled nursing facilities in the United States and the United Kingdom. The vast bulk of its rents come from the U.S. government by way of Medicare and Medicaid. While the government won’t pay much, it always pays on time.
That steady nature has allowed OHI to continue with its dividend growth, fund future expansions and provided investors with a high yield of nearly 7%.
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Realty Income, Sovran -- >>> 5 High-Yielding REITs for Dividend Investors
Kiplinger
By Daren Fonda
http://finance.yahoo.com/news/5-high-yielding-reits-dividend-142001629.html
If you're a small-time landlord, real estate can be a ton of work, with an uncertain payoff. But stick with real estate investment trusts and you're likely to be rewarded. Over the past 15 years, property-owning REITs have generated an average annual total return of 11.2% a year, doubling the 5.5% annualized gain of Standard & Poor's 500-stock index.
As giant landlords, REITs (rhymes with treats) own everything from apartment buildings to offices, malls, warehouses and hotels. Regardless of what they hold, they're required to shell out at least 90% of taxable income to shareholders. That makes them gravy trains for dividends. REIT stocks today yield 3.8%, on average, well above the 2.2% yield of the S&P 500.
REITs could get a lift, too, from a new buying wave by mutual funds. Until now, S&P has classified REITs as financial stocks, along with banks, brokers and other such firms. That was always an odd fit for real estate developers and landlords. But starting in September, two big index providers--MSCI and S&P Dow Jones Indices--plan to carve out REITs and real estate operating companies into a stand-alone sector. Real estate will be the eighth-largest group in the S&P 500--bigger than materials, telecommunications and utilities. Many mutual funds ignore REITs, and the change could prompt more interest in the stocks, propping up the sector.
Of course, REITs could take some lumps, too. After returning 10.6% in the past year, the stocks have edged into pricey territory, trading, on average, at 103% of their net asset values, slightly above their historical average. REIT stocks could face pressure, moreover, if long-term interest rates climb. That would make REIT yields less attractive than bonds and other fixed-income investments.
Yet Kiplinger's doesn't expect big rate hikes over the coming year, partly because inflation expectations remain muted. REITs continue to offer yields that are greater than those of investment-grade bonds. And their payouts are likely to climb more than those of utilities or other income investments, making them a better bet long term.
Below are five REITs we like for their dividend yields, growth prospects and reasonable share prices. Note that price-earnings ratios are based on estimated year-ahead funds from operations, a common REIT measure that represents net income plus depreciation expenses. (Returns, prices and related data are through June 10).
Gaming and Leisure Properties
Visit a casino and you'll probably lose money at the slot machines or table games. A better bet: Gaming and Leisure Properties (symbol GLPI, $34.07, P/E ratio 11, yield 6.4%). The REIT recently bought 14 casinos from Pinnacle Entertainment in a deal worth about $5 billion. Gaming issued $1.1 billion worth of stock to help finance the acquisition, and it now carries a hefty $4.9 billion in long-term debt on its balance sheet.
Overall, though, the purchase is a good deal for shareholders. With revenue now flowing from 35 casino and hotel properties in 14 states, Gaming and Leisure should generate ample cash to fund its dividend and raise it as rental income climbs gradually. Jeffrey Kolitch, manager of Baron Real Estate Fund (BREFX), figures that within a year the firm will bump its annual payout from $2.24 per share to $2.45. At 11 times estimated FFO, the stock trades well below the average of 18 for all property-owning REITs. The shares look "mispriced," says Kolitch, who sees the stock hitting $41 over the next year.
Host Hotels & Resorts
Lodging REITs such as Host Hotels (HST, $15.40, P/E 9, yield 5.2%) have hit the bargain bin. Investors worry that hotel revenues, after climbing for years, appear to be peaking, and they fear that competition from Airbnb and other home-rental websites will cut into occupancy rates and hotel profits. All this has taken a toll on Host's stock, which has sunk 17% over the past year. Yet at just 9 times projected FFO, the shares look compelling.
The largest U.S. lodging REIT, Host owns 92 upscale hotels and resorts, including luxury properties such as the Hyatt Regency Maui Resort and Spa, and the W Hotel in New York City's Union Square. Demand for its hotels, which other companies manage, appears to be healthy, with average revenue per available room (a common lodging REIT measure) climbing 3.6% in the first quarter compared with the same period in 2015. For Host's core clientele--upscale business and leisure travelers--competition from the likes of Airbnb isn't likely to pose a major threat.
Granted, Host's revenues would slump if the economy weakens and business travelers spend less on lodging. Yet that would likely be a temporary setback. Host's balance sheet looks strong, with a manageable debt level relative to its income. Its dividend should be secure, too, says Mike Underhill, manager of RidgeWorth Capital Innovations Global Resources and Infrastructure =Fund (INNNX). Over the next year, he expects the stock to hit $19.
Realty Income
Most REITs pay quarterly dividends, but Realty (O, $64.30, P/E 22, 3.5%) shells out cash monthly, paying about 20 cents per share like clockwork. That income arises from Realty's vast collection of properties: 4,615 buildings, leased mainly to big retailers such as Walgreens and Dollar General. These firms sign long-term triple-net, or NNN, leases with Realty, requiring them to pay for all property taxes, maintenance and insurance.
Although Realty isn't a high-growth REIT, it's a solid earner. The firm has paid dividends for a stunning 550 consecutive months. Its 98% property occupancy rate has never slipped below 96%, and revenues are climbing thanks to rent increases built into leases and a steady stream of property acquisitions. Realty expects FFO to rise by as much as 4.3% this year. That should support more growth in the dividend, which Realty has increased at an annualized rate of 4.7% since going public in 1994.
At 22 times FFO, Realty is one of the pricier REITs, and its stock may stay flat in the near term. But stick with it: You can scoop up steady monthly dividends while waiting for the shares to edge higher over the long run.
Sovran Self Storage
Sales are going strong for Sovran (SSS, $101.91, P/E 18, 3.1%), a self-storage REIT that owns more than 550 properties in 26 states under the Uncle Bob's brand. The firm is landing customers with its modernized, climate-controlled facilities, many of which are located in high-traffic urban and suburban areas. Occupancy hit 90.5% in the first quarter, up one percentage point from a year earlier. Sovran is also expanding with a $1.3 billion deal, announced in April, to acquire 84 properties from LifeStorage, a privately held firm whose buildings generate higher average rents per square foot than Sovran's real estate.
Sovran issued 6.9 million shares of stock to finance the LifeStorage deal. That could dilute FFO per share in the near term and lower the REIT's net asset value per share (the estimated market value of Sovran's properties, less outstanding debt). Still, analysts see Sovran's revenue jumping a healthy 17% this year, to $430 million. Sovran recently hiked its annual dividend rate by 11.8%, to $3.80 per share, and it ramped up its 2016 FFO forecast to as much as $5.55 per share, up 14.4% from 2015. Although the stock looks pricey at 18 times FFO, it has room to climb. Bank of America Merrill Lynch, which rates the stock a buy, expects the shares to hit $120 a year from now.
STAG Industrial
Leasing warehouses to auto-parts makers and other industrial firms, STAG (STAG, $22.72, P/E 14, 6%) has been snapping up properties since going public in 2011, amassing 223 buildings with more than 40 million square feet of space. Demand for warehouses should stay healthy as long as the economy keeps expanding. And STAG aims to keep up its growth, planning to acquire or develop $1.7 billion worth of properties over the next few years.
Spending heavily to buy warehouses has pushed STAG's debt load to 36% of its property values, according to brokerage firm Baird. That's slightly above average for industrial REITs. But it isn't excessive relative to STAG's income, and it shouldn't prevent the firm from acquiring more real estate. Meanwhile, rental income is rolling in. First-quarter FFO rose by 11.4% from the same period a year earlier, and STAG generates plenty of cash to support its dividend, which, Baird says, it should be able to hike at an annual clip of 7% to 8%. Trading about 20% below STAG's net asset value of $28.30 a share, the stock looks like a good value, says Baird, which expects it to hit $24 over the next year.
Top funds for real estate stocks
If you prefer to buy real estate investment trusts through a fund, you have plenty of choices. One good one is Manning & Napier Real Estate S (symbol MNREX), which holds 56 real estate stocks--mainly REITs such as mall owner Simon Property Group and storage firm Prologis. Over the past five years through June 10, the fund returned 12.4% annualized, beating 93% of its peers. One drawback: annual fees, at 1.09%, are above average.
Fidelity Real Estate Investment (FRESX) returned 12.5% annualized over the past five years. Veteran manager Steve Buller looks for REITs that offer growth at a reasonable price and says he's emphasizing health care and triple-net-lease REITs these days. The fund yields 2.5% and costs 0.78% in annual expenses.
If you simply want to track the REIT market, buy Schwab U.S. REIT ETF (SCHH), an exchange-traded fund that follows the Dow Jones U.S. Select REIT index, a basket of 96 stocks weighted by market value. Yielding 3.1%, the ETF pays out more than most mutual funds, thanks to a rock-bottom expense ratio of 0.07%.
For ultra-high income, consider iShares Mortgage Real Estate Capped ETF (REM). The fund, which yields 11.0%, invests in mortgage REITs--firms that own real-estate-backed loans. Mortgage REITs could tumble if short-term interest rates climb sharply while long-term rates stay flat or decline (squeezing the REIT's profit margins). But that looks unlikely over the next year. Annual expenses are 0.48%.
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>>> Get real: Billions set to pour into real-estate investments
The Standard & Poor's 500 and other big stock indexes will soon carve out real estate investments from the financial sector and give them their own category
Associated Press
By Stan Choe
http://finance.yahoo.com/news/real-billions-set-pour-real-161651503.html
NEW YORK (AP) -- Mutual funds are about to get much more real.
A big change is coming in how stock indexes measure the market, one that's likely to push tens of billions of dollars into real-estate investments, according to estimates. All that cash could drive further gains for a group of stocks that's already done quite well since the financial crisis. Critics say it could also make an area of the market that they call overvalued even more so.
The deluge of cash is the result of a re-think by index providers about how they see the market's construction. The Standard & Poor's 500 and other indexes have long split the market into 10 main sectors, such as technology companies or utilities or industrials. After the market closes on Aug. 31, S&P Dow Jones Indices and MSCI will carve out real estate to become the 11th sector.
For investors who own only broad index funds, the change won't mean much. Real-estate investment trusts, which own apartments, office buildings and shopping malls, will still make up about 3 percent of the S&P 500, and they'll make up the same percentage of S&P 500 index funds.
The change is much more than housekeeping for actively managed mutual funds, which still control more dollars than their index-fund rivals.
It's a stock picker's job to be different from the index. That's why they charge more in expenses than S&P 500 funds, for the opportunity to do better than the index. Even so, active managers pay close attention to how indexes are constructed. If their portfolios are very different, they'll need to explain why to their investors.
Many mutual funds have nothing at all invested in real estate. Nearly 40 percent of large-cap core fund managers have zilch, according to a review by Goldman Sachs strategists. But that's not obvious from a quick glance at funds' marketing materials, which generally show how much is invested in each of the 10 big sectors.
REITs are currently categorized as part of the financial sector. So an actively managed fund could have 16 percent of its investments in financial stocks, the same as the S&P 500, but with no real estate. At first glance, such a fund could look like it's built similarly to the S&P 500 index. But come September, that same fund would suddenly appear as if it's optimistic about banks, insurers and other financial companies — and pessimistic about real estate — because it will hold more financials and less REITs than the index.
THE WAVE HAS ALREADY BEGUN
Estimates vary widely on how much REIT buying the index changes will drive, but most are big. They range from about $10 billion to 10 times that.
"It's a tsunami," says Mike Underhill, portfolio manager at the RidgeWorth Capital Innovations Global Resources and Infrastructure fund, which owns several REITs. And he says the buying has already started.
He's recently noticed prices doing better than he'd typically expect for REITs that operate in areas where renters are falling behind on rents. He attributes that to mutual funds buying REITs in advance of the index shift.
ALREADY STRONG PERFORMANCE
The expected jump in demand could help keep REIT prices high, even after their strong performance both this year and since the stock market bottomed in March 2009. An index of REITs by MSCI has returned a cumulative 434 percent since March 9, 2009, versus 265 percent for the S&P 500.
Investors have been buying REITs in part because they offer relatively big dividends. Bond yields are low, so investors have gone searching elsewhere for yield. And REITs can avoid taxes if they pass on 90 percent of their profit to shareholders as dividends.
That's drawn investors to REITs like Simon Property Group, which owns shopping malls around the country, or Public Storage, which runs self-storage units.
The jump for REITs mean they make up about 3 percent of the S&P 500 index now, up from 0.1 percent in 2003, according to Goldman Sachs. When it becomes the 11th sector, real estate will be roughly the same size as the utilities, raw materials and telecom services sectors. The largest component in the S&P 500 is technology, which makes up 21 percent of the index.
WORRIES AND CONSEQUENCES
All the demand for REITs in recent years, though, means their prices have climbed not only on an absolute level but also relative to how much cash their businesses are producing. The jumps have been big enough that some investors call REITs overly expensive, while others say they're fairly valued. Most fund managers agree that REITs are no longer cheap.
The index changes could have particularly big impacts on investors with funds that focus on just financial stocks, which control a total of about $39 billion in assets.
The largest such exchange-traded fund, the Financial Select Sector SPDR fund, has already laid out its plans. It will pay out a special dividend to investors in September, one made up entirely of shares of an ETF created in October that focuses exclusively on REITs.
But the index shifts will likely reverberate across the market. S&P Dow Jones Indices and MSCI say they're upgrading real estate to stand-alone "sector" status because they want to acknowledge its importance to the global economy. That may push lay investors to give the sector a closer look.
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>>> Trump: His early rise into fame and wealth, his near fatal end and his resilient comeback
Iliana E. Perez
December 2000
http://www.nyu.edu/classes/keefer/ww1/perez.html
Trump: His early rise into fame and wealth, his near fatal end and his resilient comeback
The weird thing about Donald Trump is, as much as he tried to be a figure of ridiculous fun and shrug of gossip, lie as he did about things large and small, Trump appears to be an enormously skilled developer even though he has very poor investment strategies. Donald Trump’s early rise came about as the result of timely speculation and not because of his deal making strategies. During the early eighties the Real Estate market was hot and gave Trump the window of opportunity he needed. Donald Trump possesses the ability to identify profitable ventures a mile away. His aggression and one-sided focus are what allowed him to break down the existing barriers to obtain his goals of becoming successful as a developer. With all that said there is a sad and dark side to Donald Trump, I believe he suffers from an obsessive compulsive disorder. His OCD is to buy and build whatever comes to his mind is just plain crazy. His actions time and time again have proven that when he sets his sights on something; he just goes for it no matter what. Trump does not have any set strategies. Donald Trump’s impulsiveness is what many times does not let him see what will happen after he makes that first pivotal step in any direction. His OCD is best seen in his impulsive purchase of a bankrupt Eastern Airlines and a huge yacht he was never able to put into profitable use.
Donald Trump is the third generation of an entrepreneurial family. His family’s achievements and success reflect one of the biggest changes America has ever seen, from the Gold Rush in Colorado to affordable housing in Queens. Donald Trump was born in Queens, New York on June 14,1946, the day the nation united to celebrate its flag, Flag Day. Donald Trump has added to his parent’s legacy of finding the demand in the market and infusing the supply it needs. The name Donald Trump has made for himself is unsurpassed to this day.
Donald Trump grew up assisting his father in his business ventures. Trump had a very comfortable childhood and was sent to a military academy where he learned discipline and completed his middle education. In military school he learned the true meaning of competition and how aggressive you must be to get what you want. While assisting his father Trump realized he did not like the rougher aspects of his father's business. Some of the jobs he did not like included rent collecting and the physical labor involved. Trump had a great interest in real estate and decided he would like to be involved in the Real Estate business but at a larger scale than his father had ever been. He studied finance at the prestigious University of Pennsylvania's Wharton School because of this.
During his college years, Donald Trump and his father decided to purchase an apartment complex in Ohio which was in bankruptcy. The purchase of this complex is striking because they obtained financing above the purchase price so they could do the necessary remodeling to the run down complex. The development purchased by Donald Trump with his father’s aid was called Swifton Village, a 1,200 unit apartment in Cincinnati, Ohio. It was purchased at a foreclosure sale for less than $6 million and sold within a year and half for about $12 million dollars. Without a penny of their own invested they were able to turn the apartment complex around by taking a strict approach at rent collection and by remodeling the appearance of the complex. Trump was able to see how the government would assist buyers in purchasing property with little or no financial backing. and best of all how do get such aid. This incident was the beginnings of the Donald Trump we know today. This event proved to be the single most important lesson Donald Trump learned
Donald Trump is known as the all American real estate developer. Donald Trump has shaped New York City into the likes of a modern impressionist painting. All his developments and projects have been new, original, modern, and awe inspiring. Donald Trump was one of the first developers to incorporate an indoor waterfall as a back wall to a restaurant which can be found at the Trump Plaza. Donald Trump breaks the rules of construction and development but always seems to manage to do the right thing. Trump’s actions have always proven to be one of the most reckless and aggressive approaches a real estate developer has ever shown. Is he crazy or does he have an incredible amount of foresight? Buying buildings, casinos, and property just because he can conceive the idea of ownership in his head proves he may be a little bit crazy. This proves Trump’s personal self gratification and not his intelligence is what has made him millions. This strange quality which Trump possesses has given him the edge he has needed and needs to keep going. Trump’s strive for greatness has pushed him to become the national emblem that represents cocky wealth.
Donald Trump didn’t always have it this easy. Even though Trump’s first investment had great success he was not satisfied. Donald decided it was important for him to be on his own. Trump always had his sights set on New York City. Trump believed New York City would be his gold mine. He rented an apartment in Manhattan. The apartment was dingy and old by his standards and he was embarrassed to bring people there. This move to Manhattan brought him into the heart of New York City and he was able to become familiar with all of the properties in his area. He would walk the streets to make note of the buildings and their condition. Always keeping his eyes open for the right investment. He decided these steps would be very important in making a name for himself.
His first attempts at becoming a developer in the early eighties in New York City went unnoticed. Even though his bids were lower and offered more then his contractors he lost out every time. Even when Donald Trump offered his advice the city would not accept it. It seemed his earlier acclaimed fame and luck had diminished. Why? Could it have been because he was the young new face in town? Donald Trump’s youth and inexperience put doubts into the minds of other older more experienced developer. Surprisingly, this did not deter Donald; he became even more determined and aggressive similar to the likes of a spoiled child throwing a tantrum when he does not get what he wants.
Trump’s goal, was to make his mark on New York City. His persistence proved fruitful. At the age of 28 New York City finally gave Trump his chance. He had convinced the city to build a convention center on what use to be the defunct Penn Central Rail yards, which he had secured for his own benefit with options. But, that was not all Trump was able to do, he also convinced the city and the Hyatt Corporation to renovate the Commodore Hotel, which later became known as the Grand Hyatt Hotel. Finally, after these two projects were accomplished Donald Trump’s presence and skill was known. He had proved that he was someone to be reckoned with and was rapidly becoming New York’s newest real estate tycoon.
Donald Trump’s ultimate show of power was when he built the Trump Tower, on Fifth Avenue. This project was what finally provided him with the national attention he had dreamed of for so many years. It contained a mixture of stores and million-dollar apartments; this building became Donald Trump’s trademark. Trump Tower brought forth masses of tourist and was his final show of what great financial success is. When competitors tried to beat him out of the market and lowered their prices he simply raised them. Donald did not once lower his prices. He felt that affluent people, which was the market he was trying to attract would not be concerned with price. This proved he had the ability to understand the psychology of the wealthy. Donald Trump had found his niche and was going to exploit if for as long as he could.
At the peak of his wealth in the year 1989, Trump's billion dollar empire included Trump Parc which contained more than 24,000 rental and co-op apartments, the Trump Shuttle Airline, ownership of the New Jersey Generals of the United States Football league, casinos in Atlantic City, Trump Castle, and his luxurious private homes. Trump's The Art of the Deal was his way of educating the public on business dealings and how to achieve success. I believe this was his conceded attempt to lecture America and rub his financial success in the faces of all who snubbed him. Trump states his style is very basic, in his own words he describes his approach by saying, "I aim very high, and then I just keep pushing to get what I am after" (The Art of the Deal). Donald Trump is a firm believer the deal making is an ability you are born with, it is in the genes. But obviously it was his personal whims, which played a major role in the reasoning behind his acquisitions and their management.
Trump was flying high and finally felt he had achieved everything he wanted. At the speed of light he acquired and developed assets that he had no experience in managing. This caused him to soon lose sight of it all. He was unable to balance his current assets against his outstanding debts that were rapidly coming due. The real estate market boom was heading toward a bust and the rampant tidal waves of the declining market claimed the investments of many and now Donald Trump was directly in its path of destruction. The first sight that something was wrong in Donald's glittery glamorous life started surfacing at the same time the press began reporting his personal problems to the world. Once the break up with his wife and Trump’s reported affair with Marla Maples came to light it distracted him even further from his already crumbling empire. Where were his investment strategies now? They were nowhere to be found. The reality was, Trump was stretched so thin using his name and his persona as a personal guarantee that the foundation of all of his project might as well been made out of sawdust. Donald Trump had no idea what to do. His empire was slipping through his fingertips and the most powerful man in New York was helpless.
During Trump’s near bankruptcy problems the big New York banks were not too far behind. They had lent fortunes to Trump, without paying sufficient attention to where profits would be coming from or how tight an operation Trump was really running. Banks that never lent money for gambling businesses before lined up to fund Trump's empire, more for his name, his golden touch and because of his earlier estate deals than something more concrete. Trump built huge casinos and gleaming apartment buildings, brought world-famous hotels and a fleet of planes and plastered his name over everything. Is this the sign of a man with great business or an over inflated ego? The banks were so blinded by Trump’s charm and past achievements that they felt it would be the easiest buck they would ever make. This later proved to be the worst mistake the Banks could have made. It was as if the Banks had signed their souls to the devil. They were in such an awkward position, if Trump went down so would they.
By 1990 Trump was facing bankruptcy, unable to meet payments on more than $2 billion in loans that were owed to the banks. He was able to secure some emergency financing on various occasions but in return he had to give up the operation and control of most of his real estate to the creditor banks as well as 10 percent of all revenue earned. Trump gradually gave up control of considerable parts of his empire including the Trump Shuttle, casinos, and The Plaza in order to secure more favorable debt financing to cushion his near bankruptcy situation. The lenders were cracking down hard and it had become a tug of war over whose name would be more tarnished, theirs or Donald Trump's. The banks wanted to lend Trump more money but they too had become constrained. The savings and loan crises had caused federal regulators to monitor banks closely, which led to them ending practices with Trump very abruptly.
What lead to Trump's downfall and near catastrophic ending in the early nineties? I believe it was in part because of his non existent strategies. For example by putting the word "Trump" on a building or an airplane he thought this would immediately make him money. There was no concrete backing to his notions and what made it worse was the public bought into it. This proved what a great sales person Trump was in selling and displaying his image to the public but never proved that he was the wonderful business savvy person he portrayed himself to be. Trump was no magician nor was he born with an instinct for real estate as he believed. Donald Trump was simply a speculator who was bound to eventually get knocked down by debt and the normal business cycle. Forbes magazine had charted Trump's rise and estimated that his increased debt and a drop in real-estate values caused Trump to lose more than two thirds of his net worth, from $17 billion in 1989 to $500 million in 1990 (Forbes April 3, 2000).
Donald Trump I believe has helped the arrival of a new age and has brought forth the most unforgettable era in real estate but the cost was almost to high for him to pay. He wanted to accomplish too much too soon with very little planning ahead. Not being able to place proper thought on things is not the best way to start of any type of project especially not multimillion dollar ones. Donald Trump was very smart with dealing with people but until he learns to control himself and focus history may repeat itself. Trump’s aura and image lures many people to invest in his ventures. This blinding affect although great for Trump and his ventures can be deadly to investors.
Trump is the perfect example of how fast a heavily borrowed fortune and the fame that comes with it can very easily disappear if one is not careful. Despite all his misfortunes, Trump at the age of 53, a good decade and a half after he came to national prominence, Donald Trump is possibly the most famous businessman in America. According to the Gallup Organization, 98% of Americans know who he is. None of the other masters of American business like Jack Welch, or Warren Buffett, and Steve Jobs, or even Ted Turner come close. The most impressive aspect of Trump's celebrity status is not his grandeur but its durability. Donald Trump will be a name that will resonate through time. This is best illustrated in this quote, "He has far outlasted the decade that produced him, but--unlike other products of the 1980s who've managed to stay in the limelight through self-reinvention like Michael Milken "the junk bond king". Trump has done this without any discernible personal growth. Like a cryogenically frozen body, he stands as a perfectly preserved specimen of the era (Forbes)." In this new age where wealth is paper, and most assets move electronically Donald Trump's tastes and love of money can be looked upon as a refreshing change. His love of money, success and fame will always keep Donald Trump thinking of bigger and better projects to surprise the public and have the city pull its hair out.
Among Trump's peers, other rich business people like himself, the situation is very different. When Fortune magazine asked several thousand of them to rank 469 companies for its 1999 list of Most Admired Companies, they put Trump's casino company last. They ranked it worst in quality of management, in use of its corporate assets, employee talent, long-term investment value, and social responsibility. This again proves Donald Trump does not use any business strategies in his purchases. He just speculates as to what will be hot and what will not. Trump’s wealth allows him to invest in many places and usually one out five investments will be a hit which will cover all his other loosing assets. Trump tries to shrug off such opinions, in one of his books, The America We Deserve he states, "Rich people who don't know me never like me. Rich people who know me like me." Does this mean he doesn't get the recognition he deserves as a businessman? "I don't think anybody knows how big my business is," Trump replied. "People would rather talk about my social life than the fact that I'm building a 90-story building next to the U.N. ... They cover me for all sorts of wrong reasons (The America We Deserve)."
Donald Trump’s Associates describe his uncanny ability for spotting and sorting out waste as well as his outstanding memory. Trump is so detailed that he routinely requires the city to close loopholes only he had the guts to exploit. What is true for Donald Trump is that he will not usually play it safe. Because of this insecurity Trump walks the construction sites every day, yelling that the concrete is the wrong kind, that the marble isn't flat enough, that the ceiling should be ripped out and redone. Trump must be in every part of the deal. He literally believes, if you want the job done right you do it yourself. Because of this you see Trump always brings the sheer power of his persona forth. He negotiates with subcontractors himself instead of relying on a purchasing department and isn't opposed to using his celebrity status to better the terms wherever he can. To seal one deal, Trump agreed to call the subcontractor's mother and wish her a happy birthday. "He has this ability to relate to the doorman, to the guy who's carrying the iron or steel, and make that guy feel good and important (Colony Capital CEO Tom Barrack).
While Trump's lifestyle hasn't changed much since the 1980s, his dealmaking approach has. He has become a bit more cautious of the sort of leverage that pushed him close to bankruptcy in the early 1990s, he refrains from putting up large sums, instead he tries to partner with financial backers among them is General Electric's pension fund. Many of who want to tap the power of his name as well and also retain him as a sort of jungle guide. In one instance, developers paid Trump a flat $5 million licensing fee for the right to brand a Trump Tower in Seoul. Trump's opponents will usually seize these opportunities to label him as a mere front man for financial interests. Trump has become to them a brand slapped on buildings he doesn't own, which in turn many times sends Trump into spasms of outrage. "I own at least 50% of everything I do," he says, not quite accurately. Trump is always defending himself by saying, "I'm the biggest developer in the hottest city in the world."
In truth, Trump's strategy resembles a village than a fast-expanding game of SimCity, which is to say he has a lot of big projects in the works. On Manhattan's East Side, he and partner Daewoo are putting up Trump World Tower, the 90-story massive building that is going to cast a shadow on the United. Over on the West Side, he and a group of Hong Kong investors have two buildings into an 18-building residential project along the Hudson River, which again creatively is titled Trump Place. This project will fill up on of Manhattan's last big parcel of undeveloped land. Condo sales from both are benefiting from the hottest real estate market anyone can remember once again the advantage Trump had in the eighties. As for the three trophy properties Trump calls "my other children" Trump Tower, 40 Wall Street, and the General Motors Building, which he purchased in 1998 with insurance company Conseco, he has successfully succeeded in jacking up rents. His attention to detail and to what potential tenants will want has remained impeccable.
Even though in some aspects he is doing well still Trump's self-defeating tendencies are evident with his casino company, Trump Hotels & Casino Resorts. Trump took it public in 1995 under the ticker symbol DJT. It was Trump's salvation at the time, raising $140 million that he used to pay off his creditors. Without the casino company, Donald would most likely not be alive today in the way we know him. Surprisingly after near bankruptcy and downright dumb investments his underlying assets are in decent shape. Trump's three New Jersey casinos command nearly a third of all gaming revenues in Atlantic City and a slow-growing market has withstood challenges from new megacasinos. All are well-run operations which have top skilled management; the New Jersey Casino Control Commission says they all have clean records. The Taj Mahal which has about 4,500 slot machines, throws off nearly $100 million in cash annually; the smaller Trump Marina has doubled its own cash flow to $53 million in just three years. If you add in Trump Plaza and a riverboat outside Gary, Ind., the company generates more than $240 million in cash a year. Donald Trump is not just blowing smoke when he says there is a lot of money to be made in this type of business.
True, some of his investments may be a cash cow, but most of the revenues earned goes toward the care and feeding of another beast. The $1.8 billion in high-yield debt that has weighed the company down almost since its inception. The debt servicing eats up $216 million of the cash flow, leaving the company with very little capital to reinvest in its properties and even less in earnings for shareholders. The company lost $134 million after depreciation and special items in 1999, and the S&P recently lowered Trump's bond rating from junk to junkier.
The most unnerving thing about Trump has been the accusations in the press about Trump's tendency to use the casino company as his own personal piggy bank. If you look at the $5 million bonus he drew one year, or the fact that the pilots of his personal 727 are on the casino company's payroll this little bit of gossip can hardly be overlooked. In 1996 he sold the Trump Marina to the company for what many shareholders considered to be a very high price. Trump insists it was a "good deal." Trump has angered investors in 1998 when he had the already cash-strapped company lend him $26 million to pay off a personal loan from Donaldson Lufkin & Jenrette. The weird thing is Trump denies misusing company funds and says he'll repay the $26 million when it comes due May 15. What does this say about Trump’s character? Donald Trump knows how to use the situation to the best of its ability. As if all this weren't enough to rubs Trump's Street credibility in the mud, the company was also accused of overstating last year's third-quarter results when it failed to disclose that $17 million in revenues came from a one time event.
A couple of people close to Trump which hold him at high regards suggest that he's unfit to be running a public company. Given that the low stock price seems partly a function of Wall Street's allergic response to Trump's showiness analysts have named it "the Donald factor." Many believe the solution is obvious, it would be better for Trump to remove himself from management. Industry executives speculate that this step alone would bring a 30% bump up in the stock. But Trump has always chosen the opposite track. To macho to prove he may be out of his league even after having paid little attention to the casinos for several years, Donald Trump now promises to become more involved with them. Now it appears Trump will attempt to deleverage the company by unloading one of the casinos within the next six months.
Another puzzling aspect of Trump's public image is that even though he runs two companies which employ 22,000 people together, you never get the sense of an organization underneath him. It is easy to come to the conclusion that he's not only a sole proprietor but a sole employee. Both current and former employees describe Trump as a loyal but not especially well-paying boss, citing stories of birthdays remembered, of sick relatives visited in the hospital. Yet some of them shrug at the popular perception of Trump as a one-man show.
Oddly enough for a man who all but lives in the media, Trump has no public relations to speak of. In a day when even petty tycoons protect themselves with platoons of spokespeople and media people, he relies only on his longtime assistant Norma Foederer and returns most reporters' calls personally, making him one of the most accessible businessmen anywhere. How ironic a man of his statue and money has to prove himself to the world everyday. Donald Trump is a very goal-driven person and I believe will always resurface no matter how his investments turn out. Trump summed his future in these few words, "Anyone who thinks my story is anywhere near over is sadly mistaken."
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>>> Retail Opportunity Investments Corp., a real estate investment trust (REIT), engages in the acquisition, ownership, and management of necessity-based community and neighborhood shopping centers in the eastern and western regions of the United States. As of December 31, 2011, its portfolio consisted of 30 owned retail properties totaling approximately 3.2 million square feet of gross leasable area. The company has elected to be taxed as a REIT, for U.S. federal income tax purposes. The company is based in San Diego, California with additional offices in New York City; Rancho Cordova, California; West Linn, Oregon; and Federal Way, Washington. <<<
>>> Attention America's Suburbs: You Have Just Been Annexed
by Tyler Durden
07/24/2015
http://www.zerohedge.com/news/2015-07-24/attention-americas-suburbs-you-have-just-been-annexed
Submitted by Stanley Kurtz via NationalReview.com,
It’s difficult to say what’s more striking about President Obama’s Affirmatively Furthering Fair Housing (AFFH) regulation: its breathtaking radicalism, the refusal of the press to cover it, or its potential political ramifications. The danger AFFH poses to Democrats explains why the press barely mentions it. This lack of curiosity, in turn, explains why the revolutionary nature of the rule has not been properly understood. Ultimately, the regulation amounts to back-door annexation, a way of turning America’s suburbs into tributaries of nearby cities.
This has been Obama’s purpose from the start. In Spreading the Wealth: How Obama Is Robbing the Suburbs to Pay for the Cities, I explain how a young Barack Obama turned against the suburbs and threw in his lot with a group of Alinsky-style community organizers who blamed suburban tax-flight for urban decay. Their bible was Cities Without Suburbs, by former Albuquerque mayor David Rusk. Rusk, who works closely with Obama’s Alinskyite mentors and now advises the Obama administration, initially called on cities to annex their surrounding suburbs. When it became clear that outright annexation was a political non-starter, Rusk and his followers settled on a series of measures designed to achieve de facto annexation over time.
The plan has three elements: 1) Inhibit suburban growth, and when possible encourage suburban re-migration to cities. This can be achieved, for example, through regional growth boundaries (as in Portland), or by relative neglect of highway-building and repair in favor of public transportation. 2) Force the urban poor into the suburbs through the imposition of low-income housing quotas. 3) Institute “regional tax-base sharing,” where a state forces upper-middle-class suburbs to transfer tax revenue to nearby cities and less-well-off inner-ring suburbs (as in Minneapolis/St. Paul).
If you press suburbanites into cities, transfer urbanites to the suburbs, and redistribute suburban tax money to cities, you have effectively abolished the suburbs. For all practical purposes, the suburbs would then be co-opted into a single metropolitan region. Advocates of these policy prescriptions call themselves “regionalists.”
AFFH goes a long way toward achieving the regionalist program of Obama and his organizing mentors. In significant measure, the rule amounts to a de facto regional annexation of America’s suburbs. To see why, let’s have a look at the rule.
AFFH obligates any local jurisdiction that receives HUD funding to conduct a detailed analysis of its housing occupancy by race, ethnicity, national origin, English proficiency, and class (among other categories). Grantees must identify factors (such as zoning laws, public-housing admissions criteria, and “lack of regional collaboration”) that account for any imbalance in living patterns. Localities must also list “community assets” (such as quality schools, transportation hubs, parks, and jobs) and explain any disparities in access to such assets by race, ethnicity, national origin, English proficiency, class, and more. Localities must then develop a plan to remedy these imbalances, subject to approval by HUD.
By itself, this amounts to an extraordinary takeover of America’s cities and towns by the federal government. There is more, however.
AFFH obligates grantees to conduct all of these analyses at both the local and regional levels. In other words, it’s not enough for, say, Philadelphia’s “Mainline” Montgomery County suburbs to analyze their own populations by race, ethnicity, and class to determine whether there are any imbalances in where groups live, or in access to schools, parks, transportation, and jobs. Those suburbs are also obligated to compare their own housing situations to the Greater Philadelphia region as a whole.
So if some Montgomery County’s suburbs are predominantly upper-middle-class, white, and zoned for single-family housing, while the Philadelphia region as a whole is dotted with concentrations of less-well-off African Americans, Hispanics, or Asians, those suburbs could be obligated to nullify their zoning ordinances and build high-density, low-income housing at their own expense. At that point, those suburbs would have to direct advertising to potential minority occupants in the Greater Philadelphia region. Essentially, this is what HUD has imposed on Westchester County, New York, the most famous dry-run for AFFH.
In other words, by obligating all localities receiving HUD funding to compare their demographics to the region as a whole, AFFH effectively nullifies municipal boundaries. Even with no allegation or evidence of intentional discrimination, the mere existence of a demographic imbalance in the region as a whole must be remedied by a given suburb. Suburbs will literally be forced to import population from elsewhere, at their own expense and in violation of their own laws. In effect, suburbs will have been annexed by a city-dominated region, their laws suspended and their tax money transferred to erstwhile non-residents. And to make sure the new high-density housing developments are close to “community assets” such as schools, transportation, parks, and jobs, bedroom suburbs will be forced to develop mini-downtowns. In effect, they will become more like the cities their residents chose to leave in the first place.
It’s easy to miss the de facto absorption of local governments into their surrounding regions by AFFH, because the rule disguises it. AFFH does contain a provision that allows individual jurisdictions to formally join a regional consortium. Yet the rule leaves it up to local authorities to decide whether to enter regional groupings — or at least the rule appears to make participation in regional decision-making voluntary. In truth, however, just by obligating grantees to compare their housing to the demographics of the greater metropolitan area, and remedy any disparities, HUD has effectively turned every suburban jurisdiction into a helpless satellite of its nearby city and region.
We can see this, because the final version of AFFH includes much more than just the provisions of the rule itself. The final text of the regulation incorporates summaries of the many public comments on the preliminary rule, along with replies to those comments by HUD. This amounts to a running dialogue between leftist housing activists trying to make the rule more controlling, local bureaucrats overwhelmed by paperwork, a public outraged by federal overreach, and HUD itself.
Read carefully, the section of the rule on “Regional Collaboration and Regional Analysis” (especially pages 188–203), reveals one of AFFH’s key secrets: It doesn’t really matter whether a local government decides to formally join a regional consortium or not. HUD can effectively draft any suburb into its surrounding region, just by forcing it to compare its demographics with the metropolitan area as a whole.
At one point (pages 189–191), for example, commenters directly note that the obligation to compare local and regional data, and remedy any disparities, amounts to forcing a jurisdiction to ignore its own boundaries. Without contradicting this assertion, HUD then insists that all jurisdictions will have to engage in exactly such regional analysis.
Comments from leftist housing activists repeatedly call on HUD to pressure local jurisdictions into regional planning consortia. At every point, however, HUD declines to demand that local governments formally join such regional collaborations. Yet each time the issue comes up, HUD assures the housing activists that just by compelling local jurisdictions to compare their demographics with the region as a whole, suburbs will effectively be forced to address demographic disparities at the total metropolitan level (e.g., page 196).
When housing activists worry that a suburb with few poor or minority residents will argue that it has no need to develop low-income housing, HUD makes it clear that the regulation as written already effectively forces all suburbs to accommodate the needs of non-residents (pages 198–199). Again, HUD stresses that the mere obligation to analyze, compare, and remedy demographic disparities at the local and regional levels amounts to a kind of compulsory regionalism.
HUD’s language is coy and careful. The Obama administration clearly wants to avoid alarming local governments, so it underplays the extent to which they have been effectively dissolved and regionalized by AFFH. At the same time, HUD wants to tip off its leftist allies that this is exactly what has happened.
At one level, then, the apparatus of formal and voluntary collaboration in a regional consortium is a bit of a ruse. AFFH amounts to an annexation of suburbs by cities, whether the suburbs like it or not. Yet the formal, regional groupings enabled by the rule are far from harmless.
Comments from housing advocates (pages 194–197), for example, chide HUD for failing to include a mention in AFFH of the hundreds of federally-funded regional plans already being developed by leftist activists across the country (the “Sustainable Communities Regional Planning Grant” program). These plans entail far more than imposing low-income housing quotas on the suburbs. They embody the regionalist program of densifying housing in suburb and city alike, and they structure transportation spending in such a way as to make suburban living far less convenient and workable. HUD replies that these plans can indeed be used by regional consortia to fulfill their obligations under AFFH.
So a city could formally join with some less-well-off inner-ring suburbs and present one of these comprehensive regionalist dream-plans as the product of its consortium. At that point, HUD could pressure reluctant upper-middle-class suburbs to embrace the entire plan on pain of losing their federal funds. In this way, AFFH could force the full menu of regionalist policies—not just low-income housing quotas—onto the suburbs.
There are plenty of ways in which HUD can pressure a suburb to bend to its will. The techniques go far beyond threats to withhold federal funds. The recent Supreme Court decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project has opened the door to “disparate impact” suits against suburbs by HUD and private groups alike. That is, any demographic imbalance, whether intentional or not, can be treated by the courts as de facto discrimination.
Just by completing the obligatory demographic analysis demanded by AFFH—with HUD-provided data, and structured according to HUD requirements—a suburb could be handing the government evidence to be used in such a lawsuit. Worse, AFFH demands that suburbs account for their demographic disparities, and forces them to choose from a menu of HUD-provided explanations. So if a suburb follows HUD’s lead and formally attributes demographic “imbalances” to its zoning laws, the federal government has what amounts to a signed confession to present in a disparate-impact suit seeking to nullify local zoning regulations. With a (forced) paper “confession” from nearly every suburb in the country in hand, HUD can use the threat of lawsuits to press reluctant municipalities to buy into a regional consortium’s every plan.
Regionalists consider the entire city-suburb system bigoted and illegitimate, so there are few local governments that HUD would not be able to slap with a disparate-impact suit on regionalist premises. It’s unlikely that any suburb has a perfect demographic and “asset” balance in every category. All HUD has to do is decide which suburban governments it wants to lean on. With every locality vulnerable to a suit, every locality can be made to play the regionalist game.
Leftist housing activists worry that AFFH never specifies the penalties a suburb will face for imbalances in its housing patterns. These activists just don’t get it. A thoughtful reading of AFFH, including its extraordinary “dialogue” section, makes it clear that HUD can go after any suburb, any time it wants to. The controlling consideration will be politics. HUD has got to boil the frog slowly enough to prevent him from jumping.
It will take time for the truth to emerge. Just by issuing AFFH, the Obama administration has effectively annexed America’s suburbs to its cities. The old American practice of local self-rule is gone. We’ve switched over to a federally controlled regionalist system. Now it’s strictly a question of how obvious Obama and the Democrats want to make this change — and when they intend to bring the hammer down. The only thing that can restore local control is joint action by a Republican president and a Republican congress to rescind AFFH and restrict the reach of disparate impact litigation. We’ll know after November 8, 2016.
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$SPF Standard Pacific Sees Big January Orders Growth
Add upscale #homebuilder Standard Pacific (SPF) to those reporting strong January order growth, which some economists and builders say bodes well for the coming spring selling season. SPF says during the 4Q conference call had a net 463 contracts signed last month, up 27% from a year earlier and faster than 4Q's 11% order growth. "Sales trends were positive in nearly all of our markets in January," notes CEO Scott Stowell. "2015 is off to a strong start, and we're looking forward to the spring selling season." Shares rise 4.1% to $7.54, moving shares back into the green for 2015.
http://seekingalpha.com/article/2894876-standard-pacifics-spf-ceo-scott-stowell-on-q4-2014-results-earnings-call-transcript?auth_param=21hhj:1adai9a:1cc3cf0705313b05dc841355772c93ac&uprof=45
>>> Sovran Self Storage, Inc. operates as a real estate investment trust (REIT). It engages in the acquisition, ownership, and management of self-storage properties in the United States. The company?s self-storage properties offer storage space to residential and commercial users, as well as offer outside storage for automobiles, recreational vehicles, and boats. As of February 15, 2007, it owned and managed 328 properties, consisting of approximately 20.3 million net rentable square feet in 22 states. Sovran Self Storage has elected to be treated as a REIT for federal income tax purposes and would not be subject to income tax to the extent it distributes at least 90% of taxable income to its stockholders. The company was founded in 1982 and is headquartered in Williamsville, New York. <<<
>>> Extra Space Storage, Inc. operates as a real estate investment trust (REIT) in the United States. It engages in property management and development activities that include acquiring, managing, developing, and selling, as well as the rental of self-storage facilities. As of December 31, 2006, Extra Space Storage owned interests in 567 properties located in 32 states and Washington, D.C., as well as managed 74 properties owned by franchisees or third parties. As a REIT, the company would not be subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its stockholders. The company was founded in 1977 and is based in Salt Lake City, Utah. <<<
Storage REITS -- >>> An alternative place to store your money with a 483% return...
By Nicole Goodkind
Yahoo Finance
http://finance.yahoo.com/news/the-number-one-alternative-investment--storage-space-164102530.html
The number one alternative investment according to Bloomberg Markets is … storage space. Yes, you read that correctly.
According to the magazine’s annual ranking of alternative and exotic investments, storage units (specifically storage facility REITs) have been having a great few years.
Storage REITs such as Extra Space (EXR), Public Storage (PSA), CubeSmart (CUBE) and Sovran Self Storage (SSS) have seen gains between 142% and 483% in the past five years. Storage as a category has returned 101% from 2008 through 2011, outperforming all other REIT categories. There are now 52,000 storage properties in the United States, up from just under 20,000 in 1990. Nearly 11 million Americans rent storage units each year.
“Homeownership in the U.S. is at its lowest point in 19 years,” says Devin Banerjee, U.S. investing reporter at Bloomberg News, "and people aren’t upsizing [moving into larger homes] as much as they used to. if you’re not upsizing, then you need a place to put all of that stuff. You’re going into storage.”
Now that the economy seems headed toward recovery, however, it may be too late to get in on these gains.
“There are some warnings signs across the markets," he says. “The industry is consolidating, these large players are going into small towns, trying to expand geographically and acquiring local players."
“There’s a lack of new supply,” when it comes to storage space, Banerjee adds.
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Omega Healthcare Investors -- >>> This 5.75% Healthcare REIT Clearly Deserves The Attention Of Serious Income Investors
May. 1, 2014
http://seekingalpha.com/article/2181843-this-5_75-percent-healthcare-reit-clearly-deserves-the-attention-of-serious-income-investors
Summary
•Omega Healthcare Investors is a great income vehicle offering investors a 5.75% dividend yield and implicit promise of increasing dividends.
•Omega Healthcare Investors combines exposure to megatrends senior healthcare and U.S. real estate.
•Omega Healthcare Investors just presented investors with another dividend hike -- the seventh in a row.
•Omega Healthcare Investors is a cornerstone income investment for investors who desire steady income, low portfolio turnover, a high yield and solid capital appreciation potential.
It is no secret that I am a huge fan of Omega Healthcare Investors (OHI). Over the years I have gradually screened the Real Estate Investment Trust sector and I found Omega Healthcare Investors to be one of the most convincing healthcare REITs in the marketplace. I think Omega Healthcare Investors is a solid investment for income investors seeking both recurring income and the potential for capital appreciation and might also be an interesting alternative for investors who gravitated toward an investment in Health Care REIT (HCN). Healthcare REITs like OHI invest in senior care facilities which are operated by third party healthcare providers. The main reason I like Omega Healthcare Investors is because it gives investors exposure to two convincing secular trends: U.S. real estate and the rising demand for senior healthcare.
Two megatrends benefiting OHI
The United States, despite its current economic problems, remain one of the most attractive countries for immigration and I would venture to guess, that America only becomes more attractive for immigrants when the U.S. economy does better. Immigration and population growth also lead to larger cohort of people aged 65+ who require medical assistance and, possibly, will be institutionalized. In addition, a steady flow of new residents has profound impacts on the value of real estate in a country. An investment in Omega Healthcare Investors combines both themes.
Of course, in order to benefit from an investment in Omega Healthcare Investors, investors need to have a long-term investment horizon. Senior healthcare is a megatrend that will only gradually play out and does require a significant amount of patience on the side of the investor. Nonetheless, Omega Healthcare Investors is an excellent bet on both the U.S. and the rising demand for medical facilities in the coming decades.
I have previously written about Omega Healthcare Investors as a cornerstone investment for retirees who desire a dependable dividend-paying stock with little need for attention. Omega Healthcare Investors might also be a suitable investment for investors who desire low portfolio turnover and who want to minimize transaction costs.
First quarter results
Omega Healthcare Investors delivered first quarter results on Tuesday which were solid (as expected). The REIT reported:
•Reported funds from operations (FFO) of $84.4 million or $0.68 per common share compared to $70.1 million or $0.62 per common share in the year ago quarter -- a plus of 20% (10%).
•Adjusted FFO of $88.8 million or $0.71 per common share compared to $71.7 million or $0.63 per common share in last year's first quarter -- an increase of 24% (13%).
•Net income available to common stockholders of $55.8 million or $0.45 per diluted common share vs. net income of $38.1 million or $0.34 per diluted common share in the year ago quarter -- an increase of 46% (32%).
I have also previously pointed out that Omega Healthcare Investors has been investing aggressively in new facilities: In the first quarter 2014 the REIT continued its growth strategy and funneled $117 million into new investments and allocated another $4 million to capital renovation projects.
Omega Healthcare Investors has presented another solid quarter with improvements in both net income and, more importantly, funds from operations. Given OHI's strong first quarter performance, I expect further dividend increases throughout 2014.
Technical picture
Omega Healthcare Investors has done well for shareholders: Over the last year the stock returned 8% and over the last two years 63%. The stock also has gained momentum since the beginning of February 2014 when equity markets quickly rebounded from the sell-off at the end of January. Since the beginning of February, Omega Healthcare Investors has returned approximately 14% and I see further upside potential for the remainder of the year.
Consolidations, of course, can happen any time, especially after OHI's run up since February, but pullbacks in share price always offer investors a good opportunity to purchase more of a quality stock. The power here lies with investors who don't need to trade.
Conclusion
Omega Healthcare Investors remains a solid REIT pick for investors looking for a steady income stream even though OHI's stock price has increased substantially over the last two years. First quarter results have shown that the healthcare REIT continues to deliver growth which is reflected in a solid 5.75% dividend yield. Omega Healthcare Investors' dividend stream also carries the implicit promise of further dividend increases down the road (the REIT just recently announced its seventh consecutive increase in its quarterly dividend). An investment in Omega Healthcare Investors is particularly attractive for investors who desire low portfolio turnover and who want to implement a serious, long-term financial plan to achieve financial independence.
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>>> The Howard Hughes Corporation, a real estate company, owns, manages, and develops commercial, residential, and mixed-use real estate in the United States. It comprises master planned communities, operating properties, strategic developments, and other assets spanning 18 states from New York to Hawaii. The company operates in two segments, Master Planned Communities and Strategic Development. The Master Planned Communities segment develops and sells residential and commercial land. It sells residential parcels designated for detached and attached single- and multi-family homes ranging from entry-level to luxury homes, including condominium, town homes, and apartments to home builders; and commercial parcels designated for retail, office, services, and other for-profit activities, as well as parcels designated for use by government, schools, and other not-for-profit entities. This segment also owns 4 master planned communities with approximately 14,000 acres of land. The Strategic Development segment comprises medium and long-term real estate properties and development projects. Its development opportunities consist of 9 mixed-use development opportunities, 4 mall development projects, 7 redevelopment projects, and 11 other property interests, including ownership of various land parcels and certain profit interests. The company was formerly known as Summa Corporation and changed its name to The Howard Hughes Corporation in 1994. The Howard Hughes Corporation was founded in 1909 and is based in Dallas, Texas. The Howard Hughes Corporation operates independently of The Rouse Company LLC as of November 5, 2010.
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Public Storage -- >>> Who Knew Public Storage Could Be The Cool Kid On The Block?
Nov 12 2013
http://seekingalpha.com/article/1830682-who-knew-public-storage-could-be-the-cool-kid-on-the-block?source=yahoo
The CEO of Public Storage (PSA) stated in the 2012 annual report, the four D's were the main contributors to the growth of the company. Here's an excerpt of what he said:
Over the past 40 year, not much has changed in our business (that is good). The key reasons people use self-storage remain the same-the four D's: downsizing, divorce, death and dislocation....
The CEO really meant to say is that constant change, tragedy, and the cyclicals of life (Except for divorce or a breakup which could be a positive thing for a person) are the reasons for the success of the company. I would be hard pressed to argue against the CEO of his own company saying the four D's (maybe three D's) weren't a factor. From a consumer mindset, we've all seen the bright orange signs from the freeway that say "Public Storage," but what is so special about this company that has allowed it to be so successful, in such a fragmented niche industry? I can only think of one thing which all investors should focus on and it's management's actions.
Capital Structure
As I started to read the annual reports and press releases, one of the main differentiators I started to notice versus other publicly traded REITs was the capital structure the company has chosen to use to expand the company. A key-component for REITs is their ability to access capital in order to finance operations and grow. Most REITs issue bonds as their primary source of capital, PSA prefers preferred shares (preferred stock). When thinking about what slice of the capital markets most companies in general raise capital from, it's usually the bond or equity markets, with the preferred market only mentioned in passing.
I know we could argue all day about preferred shares being only debt or only equity. The reality of it is unless you own millions of dollars of senior secured debt or common stock, you really won't get the advantages of the first right of the collateral or voting power in a proxy vote. The advantage for PSA in issuing preferred shares is:
1.Management doesn't have the stress of bank lenders riding their back about paying back debt otherwise the company's properties will be seized
2.Access to capital in the preferred market is easy and interest-rates are at historical lows
3.Issuing preferred shares allows the balance sheet ratios to stay extremely low, allowing the company to access the debt market if necessary
4.The number of common shares outstanding stays low, which allows the company, structured as a REIT to pay out more in dividends (Of course after the preferred get their share)
Let the Numbers do the Talking
PSA is one of the few companies I follow, which issue preferred shares to raise capital. How has it faired? (Refer to the graph below)
(click to enlarge)
Since 2007 the company has outperformed the S&P 500 and the NAREIT Equity Index. The argument is though, is this attributable to the capital structure or the company's business model?
Business Model
PSA is known for its self-storage units as being its main revenue source. Management has acknowledged the company has a concentrated portfolio in storage units, but in reality the company's business goes beyond just storage units in the United States. PSA owns a 43% common equity interest in PS Business Parks, Inc (PSB), which owned and operated approximately 28.6 million rentable square feet of commercial space, primarily flex, multi-tenant office and industrial space. In addition, management has traveled across the pond to seven different European countries, and owns 49% of Shurgard Europe, which operates 188 facilities with approximately 10 million net rentable square feet.
Owning PSA allows an investor to have the luxury of two types of diversification: 1) International exposure to public storage units, and 2) Domestic commercial real estate exposure through small multi-flex office buildings. Both the storage unit business model and the commercial real estate model allows PSA's management to apply their experience over sub-sectors.
The storage unit business is traditionally known as a safe cash-flow generating business, which doesn't require the same capital or time expenditures as a commercial building. A commercial building requires more continuous tenant improvements, common area maintenance, and more building staff to run. In addition, commercial RE is more economically sensitive to downturns as well as upturns in the economy than storage units. In a rising economy, owning commercial RE will add more to PSA's equity in earnings, as higher rental rates will be achieved. From 2010 through 2012, PSB, has added $20.7m, $27.7m, and $10.6m in equity from earnings to PSA's balance sheet. The decrease from 2011 to 2012 is due to the repurchase of preferred shares by PSB.
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American Tower - profile (REIT) -
>>> American Tower Corporation, a real estate investment trust, operates as a wireless and broadcast communications infrastructure company. It develops, owns, and operates communications sites. The company's rental and management operations include leasing antenna space on multi-tenant communications sites to wireless service providers, radio and television broadcast companies, wireless data providers, government agencies and municipalities, and tenants in various other industries; managing rooftop and tower sites for property owners; operating in-building and outdoor distributed antenna system (DAS) networks; and managing lease property interests under carrier or other third-party communications sites. It also provides network development services, such as tower-related services comprising site acquisition, zoning and permitting services, and structural analysis services. As of December 31, 2011, the company owned and operated approximately 21,320 towers in the United States and approximately 23,900 towers in Brazil, Chile, Colombia, Ghana, India, Mexico, Peru, and South Africa; approximately 260 DAS networks; and approximately 1,810 communications sites. It has elected to be taxed as a real estate investment trust. As a result, the company would not be subject to corporate income tax on that portion of its net income that is distributed to shareholders. American Tower Corporation was founded in 1995 and is headquartered in Boston, Massachusetts. <<<
>>> Howard Hughes Corp -- >>> Interest-Rate Fears Drag Down Howard Hughes Corp.: Buying Opportunity?
Forbes
8-16-13
http://www.forbes.com/sites/danielfisher/2013/08/16/interest-rate-fears-drag-down-howard-hughes-corp-buying-opportunity/?partner=yahootix
Hughes: His Las Vegas land buys are helping to power HHC's stock.
The management team at Howard Hughes HHC -0.98% Corp. got their jobs in an unusual way: They bought them. That should give investors comfort as the real estate firm’s shares have fallen more than 12% in recent weeks on fears of rising interest rates.
Chief Executive David Weinreb, President Grant Herlitz and CFO Andrew Richardson wrote checks for $19 million when they signed on to run the spinoff from General Growth Properties GGP +0.67% in late 2010 and early 2011. They bought warrants to buy 2.8 million shares at $42.23 to $54.50 a share, then significantly above HHC’s trading price.
All three executives are heavily in the money now on those warrants, but here’s the twist: They can’t cash in their winnings until 2016, meaning they have plenty of motivation to keep building this company based partly upon the Las Vegas landholdings of the eccentric billionaire best known for his obsessions with germs, Hollywood starlets and dangerous aircraft.
HHC also owns the South Street Seaport in Manhattan, most of the remaining acreage in the Woodlands development north of Houston, and a 60-acre plot near Waikiki Beach in Hawaii that it is developing into high-rise condominiums.
“It’s a very interesting five-year story,” said Wilkes Graham, an analyst with Compass Point Research & Trading, who thinks HHC is worth at least $140 a share. Weinreb et al “said from Day One `we know there’s a handful of assets that will create a lot of money for us, but we don’t know when.’”
HHC is a spinoff from General Growth Properties, the mall developer that hedge-fund manager William Ackman helped guide out of bankruptcy after scooping up a quarter of the company on the cheap for $60 million in 2008. Ackman recruited Weinreb — a fellow graduate of Horace Greeley High School in suburban New York — with the same unconventional warrant-fueled compensation scheme he used when he installed former Apple AAPL -1.64% retail chief Ron Johnson as chief executive of J.C. Penney Co. in 2011.
Having more than doubled since the beginning of last year, HHC shares may well have earned a breather. But Graham told me there are good reasons to believe shares in the real estate developer will resume their climb.
•Land sales are accelerating. In The Woodlands, where HHC has the remaining 750 acres of the sprawling planned community, HHC shifted to an auction process and has doubled revenue per acre. Developers there are now paying $614,000 per acre for building lots. At Summerlin, a development outside Las Vegas, HHC recently sold almost 60 acres for $407,000 an acre, up from $225,000 an acre a year ago. Graham now expects $100 million of land sales by the end of the year in the once-depressed Vegas market.
•Condominium development. Graham estimates 40% of cash flow from 2015-2020 will come from the company’s Ward Village and Ala Moana developments in Hawaii. HHC has 4,000 units planned at Ward Village, which is situated between Waikiki Beach and downtown Honolulu.
•South Street Seaport. HHC is investing $340 million to renovate the 365,000 square-foot Pier 17 at one of New York’s most popular tourist destinations, with plans to reopen in 2015. Graham estimates the company can earn a 22% return on investment after $1.2 million a year in ground lease payments, creating $1.5 billion in value at a REIT-level 5% cap rate. (Cap rate is the net operating income divided by property value, a popular method for assessing commercial real estate prices.)
Adding up HHC’s development projects, Graham estimates the company has a net present value of at least $140 a share assuming a 16% discount rate and the company finishes building out its current acreage and condominiums in 2020. Accelerate that to 2017 — when the top executives’ warrants are in their cashout phase — and the NPV rises to $200.
Weinreb and his colleagues have been moving fast so far. They spent the first year or two recruiting executives from respected development firms like Brookfield Asset Managment and this year broke ground on three projects plus the South Street Seaport renovation. Graham figures income from those projects will start coming in 2015, replenishing the cash the company needs to spend to keep building.
As the commercial portfolio grows, he thinks HHC will be a candidate for a REIT spinout, where the income-producing properties are effectively sold to a buyer with a lower sensitivity to price than, say, a hard-edged negotiator like Ackman.
Pershing Square owns about 13% of HHC, partly through currently exercisable warrants. Other big investors include Australia’s Future Fund of Guardians, which owns 4.7%; and Julian Robertson’s Tiger Managment, which has bought a $200 million position.
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AO Smith -- >>> A.O. Smith: This Water Heater Manufacturer Is Sizzling
Aug 23 2013
by: Fusion Research
about: AOS, includes: BDC, OSIS
http://seekingalpha.com/article/1654592-buy-a-o-smith-this-water-heater-manufacturer-is-sizzling?source=yahoo
A.O. Smith Corp (AOS) is a leader in providing gas, electric and oil, water heaters, water treatment products, and boilers for both the residential and commercial markets. The company also provides copper-tube boilers and expansion tanks, commercial solar systems and swimming pool and spa heaters.
It reports revenue in two segments, North America and the rest of the world. The North American segment largely consists of sales in United States and Canada. The rest of the world segment is responsible for 24% of sales, primarily driven by China and India. Strong growth in these business segments guided A.O. Smith to prosper in terms of revenue.
Normally companies that record impressive growth for a number of quarters face a situation where there is stagnation in the markets, and the growth trajectory tends to fall flat. There are a number of reasons that cause the downfall, reduction in demand for the products is one of them. In contrast to this, A.O. Smith has been observing quarter-over-quarter growth in the past couple of years mainly driven by rising demand for its products. Also, it has posted compelling recent quarter results.
Solid Earnings
Recently, on July 24, 2013 A.O. Smith announced compelling second quarter results with a 13% year-over-year revenue increase to $549.1 million. Solid sales in North American and Chinese markets were the primary reason the company observed this growth. The North American market's second quarter sales increased around 6% year-over-year to $389 million. The improved economic conditions and the recovery of the new housing market in the U. S. contributed heavily to the 6% growth. For the rest of the year, management expects that constant market acceptance of high efficiency boilers will also bring lucrative revenue generating opportunities to the water heater replacement business.
A.O. Smith experienced an impressive 35% year-over-year growth in revenue in the Chinese market to $143.6 million during the second quarter of 2013. Increased demand for its premium water heaters with higher value features and a higher priced product mix drove the rise in sales. Looking at this strong growth, the company expects sales in the Chinese market will grow an additional 18% in fiscal year 2013, which includes more than 10% growth in the second half of this year.
Considering these exciting results, AO Smith has raised its guidance range for GAAP earnings between $1.62 per share - $1.68 per share. This is in comparison to GAAP earnings of $3.00 per share - $3.16 per share disclosed during the first quarter of 2013. The EPS guidance for the second quarter is almost half of the EPS guidance announced during first quarter because of the 2-for-1 stock split plan approved by the board in April 2013. Moreover, it laid out its 2015 revenue aspirations of $2.4 billion - $2.45 billion by 2015, which consists of organic growth of 7% per year.
We believe it has the potential to achieve the desired guidance. If the company does so, it would imply a CAGR of 8.1% in revenue from $1.9 billion in 2012. The earnings aspirations from the existing businesses are now expected to be approximately $2.25 per share by 2015 versus the previously anticipated $2.15 per share. All of these aspirations are based on expectations for higher revenue due to the rise in new construction in the U.S. and 10% revenue growth of Lochinvar branded products through 2015. Lochinvar is a manufacturer of water heaters and boilers A.O. Smith acquired in 2011. Moreover, it is aggressively looking forward to pursue acquisition opportunities this year that will add value in terms of revenue and aims to have a broader product pipeline
Stock performance goes hand-in-hand
Taking into account the past year stock price performance of A.O. Smith, it has provided notable 64.66% returns to its shareholders. The constant upward movement in the stock price in the past one year is due to 13.4% year-over-year revenue growth in fiscal year 2012. The company is providing consistent performance - it posted strong numbers in the first half of this year that is allowing the stock price to rise accordingly.
AO Smith has engaged in the share repurchase, dividend distribution and stock split activities that attracted new investors. This indicates that it is using its cash flow very wisely and will guide the company to provide additional returns to its investors and attract new investors.
Going forward, we assume the growing demand for AO Smith's products in the North American and Chinese market will support it to continue to observe a regular uptick in the stock price. Additionally, it is also looking forward for potential acquisitions, which we believe could positively impact the revenue generation capacity and the upward stock price movement.
AOS Total Return Price data by YCharts
U.S. and China Pushing A.O. Smith ahead
As discussed above, A.O. Smith is currently experiencing strong demand for its products in the U.S. and Chinese market, let's find out how these markets continue will with the solid contribution in upcoming years.
· U.S.
A.O. Smith is the leading water heater manufacturer in the U.S. The demand for its products is mainly based on volatility in the U.S. housing markets. The U.S. Census Bureau and the Department of Housing and Urban Development have released new residential construction statistics for May 2013. Annual data for housing completion was 690,000, up 12.6% compared to May 2012, and the annual rate for new housing starts was 914,000, up 28.6% year-over-year.
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>>> Public Storage: Positioned For The New Industrial Revolution
Aug 8 2013
by: Michael van der Meer
about: PSA (Public Storage), includes: CUBE, EXR, IPGP, SSS
http://seekingalpha.com/article/1618032-public-storage-positioned-for-the-new-industrial-revolution?source=yahoo
The poster boy of the New Industrial Revolution (NIR) is 3D printing. But the NIR is about more than just one technology, it's about the convergence of several technologies including automation, laser cutting, 3D scanning, communications and software. This convergence makes the democratization and mass customization of manufacturing a distinct possibility within the near future.
With valuation metrics at multiples of those of the S&P 500 investing in NIR-related stocks is not for the faint-hearted - IPG Photonics (IPGP) being a notable exception which, for a growth stock, has a reasonable trailing P/E of 21 and an S&P 500 beating PEG ratio of 0.56. (The PEG ratio adjusts P/E for expected growth).
Select NIR stocks
Ticker
NIR sub-sector
P/E
PEG
3D Systems Corp
DDD
3D printing
113.53
2.34
iRobot
IRBT
Robotics
38.16
3.86
Proto Labs
PRLB
Injection molding
60.26
1.53
FARO Technologies
FARO
3D scanning
30.57
1.35
IPG Photonics
IPGP
Fiber lasers
21.41
0.56
After taking a breather earlier in the year NIR-related stocks seem to be making a run towards breaching new highs. If you wanted to gain exposure to the NIR but were waiting on the sidelines for valuations to come down to earth you probably have that nagging feeling that you may have missed the boat. Below I propose a way to satisfy that itch without throwing your copy of The Intelligent Investor out the window.
The Revolution will spread from the cities
Manufacturing will increasingly become a tinkering, trial and error, creative process - much like a music band getting together to record an album: there will be a songwriter (CAD designer), musicians (engineers), lead vocalist (marketers) and producers (venture capitalists). This "band of Makers" will want to use a fully kitted warehouse where they can collaborate and compete with other multi-talented teams using CNC machines, 3D printers, laser cutters, injection molding and a Roomba® or two humming in the background to clean up the mess.
The NIR will lead to structural changes in industrial activity; these changes will in turn invigorate the development of new technologies thereby creating a positive feedback loop. One of the most significant changes we'll see is the return of manufacturing to high density urban environments. Only major urban centers have the diversity of human capital and niche demands in place to warrant the time and investment in custom made products - at least in the earlier stages of the NIR.
Research carried out by the Brookings Institution and the Pratt Center has highlighted the increasing role of local networks of small manufacturers, which they say will form the backbone of the new urban economy. Urban centers, they argue, favor the decentralized organizational form of 21st-century production: supple, peer-to-peer networks, rather than large, vertically integrated, multi-tier entities. One of their core recommendations is that older industrial buildings should be renovated and divided to accommodate these smaller but more technologically advanced manufacturers.
And this is really happening. In October last year 3D printing service provider Shapeways opened its "Factory of the Future" in an old warehouse located in NYC's Long Island City. Similarly TechShop, an early mover in the NIR space has established workshops in places such as downtown San Francisco.
Although the convergence of technologies is democratizing manufacturing the paradox that future manufacturing will concentrate in urban centers points to an important constraint to true democratization - the availability of prime urban floor space, such as that pictured below. For investors this scarcity presents an opportunity for monopoly profits that cannot be easily competed away (what Warren Buffett popularly termed "an economic moat").
Prime 21st century manufacturing real estate: Long Island City, NY
Enter the Self-Storage REIT
REITs are worth looking at as investments in their own right. REITs pay little to no corporate taxes and are required to pay out the majority of their profits as dividends thereby providing a steady stream of (re-investable) income. In addition REITs may offer some diversification benefits compared to non-real estate equities. There are several types of REITs but Self-Storage REITs by virtue of their business models have a significant legacy exposure to warehouse properties in, or near, urban centers.
The self-storage industry remains very fragmented - according to the Self-Storage Almanac the biggest player by far is Self-Storage REIT Public Storage Inc. (PSA), which accounts for 5% of rentable square footage in the US. Fellow REIT Extra Space Storage (EXR) comes a distant second with slightly over 2% of rentable square footage. Self-Storage REITs Sovran Self Storage, Inc. (SSS) and CubeSmart (CUBE) each only own 1% of the market.
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any cheap real estate plays,,,thxs
CoreSite Realty --- >>> 5 Small-Cap Growth-Oriented Dividend Stocks
By Meena Krishnamsetty
May 28, 2013
Tickers: COR, INGR, HWCC, MPW, WDR
http://beta.fool.com/insidermonkey/2013/05/28/5-small-cap-growth-oriented-dividend-stocks/35273/?source=eogyholnk0000001
CoreSite Realty (NYSE: COR), a provider of network-dense data center campuses and the CoreSite Mesh, which enable interconnected communities of service providers and enterprises, has achieved a total return of 54% over the past 12 months. This REIT is currently yielding 3% on a payout ratio of 61% of its 2013 FFO, based on the guidance midpoint. The company’s dividend has increased nearly 108%, cumulatively, since its initiation in December 2010. The company says it expects to continue increasing the dividend amount to that “required by REIT status and to retain excess cash flow for investment into development opportunities.”
Favorably positioned in a high demand-low supply market segment, CoreSite operates 14 data centers (1.2 million square feet) and has three more data centers under development. This year, CoreSite is expanding capacity by 311,000 net rentable square feet with a total capital investment of $195 million. In the first quarter, CoreSite grew its FFO per diluted share by 13.9% over the first quarter a year earlier. The company is expected to deliver FFO growth of 16.1% this year and 18.9% next year, according to a consensus of analysts’ FFO estimates. CoreSite is trading at 20x its 2013 FFO estimate and 16.8x its 2014 FFO estimate. <<<
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>>> CoreSite Realty Corporation engages in the ownership, acquisition, construction, and management of data centers. The data centers are specialized and secure buildings that house networking, storage, and communications technology infrastructure, including servers, storage devices, switches, routers, and fiber optic transmission equipment. These buildings provide the power, cooling, and network connectivity to operate this mission-critical equipment. The company?s data centers are located in Los Angeles, the San Francisco Bay and northern Virginia areas, Chicago, Boston, New York City, and Miami. CoreSite Realty Corporation serves telecommunications carriers, content and media entertainment providers, cloud providers, enterprise customers, financial and educational institutions, and government agencies. As of December 31, 2011, its property portfolio included 12 operating data center facilities and 1 development site. The company is qualified as a real estate investment trust (REIT) under the Internal Revenue Code. As a REIT, it would not be subject to federal income taxes, if it distributes at least 90% of its REIT taxable income to its stockholders. The company was founded in 2010 and is headquartered in Denver, Colorado. <<<
The Texas Real Estate Market
The Texas real estate market has been growing rapidly over the last few years. Even during the stock market recession, most Texas markets did not feel much of a impact. Although construction did recede, it has picked up quite drastically in Austin and Dallas.
Which brings me to my question, would it be more wise to invest in the real estate companies like Liberty Property or invest more into buying property and letting it accrue value.
Healthcare REIT sector -- >>> Ways to Profit From an Aging US Population
By Adnan Khan
May 17, 2013
Tickers: HCP, HCN, VTR
http://beta.fool.com/equityfinancials/2013/05/17/aging-us-population-help-these-stocks/34229/?source=eogyholnk0000001
The US healthcare real-estate investment trusts provide an indirect exposure to the US healthcare sector. America’s aging population needs growing healthcare services. Healthcare REITs should be part of your diversified income portfolio. Two of the largest healthcare REITs are Health Care Property Investors (NYSE: HCP) commonly referred to as HCP, and Healthcare REIT (NYSE: HCN), commonly referred to has HCN. Both have reported their performances for the first quarter of the current year. Let's discuss their latest quarter’s results and also see whether the sector provides growth opportunities for investors looking to expand their regular income.
Aging US population
The US healthcare and senior-housing market is worth around $1 trillion. However, public healthcare REITs are only 10% of the entire healthcare real estate market. This means there is tremendous opportunity for REIT growth, primarily through acquisition. Within this enormous real estate market, the medical office buildings (MOBs) are the largest property class, accounting for around 39%, followed by hospitals at 31%.
This aging population has resulted in growth in the senior housing communities during the past 11 consecutive quarters. This growth has translated into a solid demand for new construction and higher occupancy rates. However, the skilled nursing facilities have seen a slowdown.
What’s going on at HCP?
HCP reported an adjusted funds-from-operations-per-share of $0.74 for the first quarter of the current year, two cents above the mean consensus estimate. During the quarter, the same-store net operating income (NOI) came in at 1.1%, down 320 basis points over the previous quarter due to slower growth in the senior housing and medical office buildings portfolio.
HCP made acquisitions worth $96 million during the first quarter including $38 million spent to purchase the remaining four senior housing communities with Emeritus. Another $58 million was spent on the development of other capital projects. Further, a building was leased 100% to LinkedIn which was spread across 70,000 square feet.
What’s in store for HCP’s investors?
For the full year 2013, you should expect the company to perform better than the prior year due to better results on sales of marketable securities. The management has raised its outlook by $0.02 to a new range of $2.94 - $3.0. This guidance does not include the effect of future acquisition. Therefore, any future acquisitions would cause additional upside.
HCP has agreed to buy $1.73 billion worth of senior-housing communities. The deal will include 10,350 units in 29 states. Going forward, the management at HCP expects this transaction to contribute up to $0.08 per share each year to the company’s funds from operations.
HCP is currently offering a dividend yield of 4.04% on its quarterly dividend rate of $0.52 per share. At the end of the first quarter, HCP generated $0.74 in FFO per share. Therefore, its cash-dividend coverage ratio comes out to be 1.4 times. It is evident from this ratio that the company’s dividends are not in any immediate danger.
What’s going on at HealthCare REIT?
HealthCare REIT reported better than expected results for the first quarter. The adjusted funds from operations of $0.91 per share edged up $0.01 per share compared to the consensus mean expectation. However, the same-store net operating income growth was down 50 basis points sequentially to 3.5%.
During the quarter, the company made $2.5 billion worth of investments, excluding the previously-announced Sunrise acquisition. A majority of this was in the senior housing operating portfolio, with $57 million in the senior housing-triple net portfolio, yielding as high as 7%. Although this is part of the entire HCN's portfolio, this elevated yield would increase the company's overall income-generating ability, resulting in higher dividend distributions.
What’s in store for HCN’s investors?
Excluding any anticipated investments, the management maintained the 2013 funds from operations guidance at $3.70 - $3.80 per share. This guidance represents 5% – 8% growth over the prior year’s results and does not include any anticipated acquisitions in the future. Therefore, the future acquisitions would add to the current guidance.
HealthCare REIT also announced a deal $1.35 billion worth where it will partner with Revera Inc. to own and manage 47 high-quality senior-housing communities. HealthCare REIT expects the first full year unlevered net operating income yield, after payment of management fee, will be 7%. This will be another high-yielding asset of the company which when added in the HCN's portfolio will have the effect of increasing the overall dividend yield of the company.
The company generated $0.91 in funds from operations, while it offers a quarterly dividend rate of $0.76 per share, yielding over 4%. Using these figures, I arrive at 1.2 times cash-dividend coverage ratio, which means shareholders can expect the company to continue the current dividend rate even if there are moderate headwinds.
Competition
Health Care Property Investors and HealthCare REIT compete with Ventas (NYSE: VTR) in the US healthcare REITs sector. The company has been ranked 50th in the most admired companies list by the Fortune Magazine.
During the first quarter, it reported 13% increase in its normalized funds from operations to $1.03, while the full year 2013 guidance comes in within the range of $3.99 to $4.07 per share. The company benefited from its 220 senior housing communities portfolio. The average occupancy increased 270 bps, while the net operating income after management fee surged 7.3% and the revenues per occupied room increased 3.2% during the first quarter. Approximately, 50% of the last year’s net operating income for Ventas came from senior housing. The aging US population coupled with the growth opportunities within the senior housing provides Ventas with tremendous growth prospects.
Conclusion
The aging US population and the growth prospects within the US senior-housing market will be the primary drivers of the stock prices for HCP and HealthCare REIT. Besides, offering growth prospects, both HCP and HealthCare REIT are generating more than sufficient cash from operations to support their current dividends. Therefore, I am bullish on both the stocks.
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Omega Healthcare Investors (REIT) -- >>> 5 Buy-Rated Dividend Stocks
By TheStreet Wire
05/03/13
http://www.thestreet.com/story/11913603/4/5-buy-rated-dividend-stocks.html
Omega Healthcare Investors
Dividend Yield: 5.70%
Omega Healthcare Investors (NYSE:OHI) shares currently have a dividend yield of 5.70%.
Omega Healthcare Investors, Inc. operates as a real estate investment trust (REIT) in the United States. The company invests in healthcare facilities, principally long-term healthcare facilities in the United States. The company has a P/E ratio of 28.88.
The average volume for Omega Healthcare Investors has been 1,330,700 shares per day over the past 30 days. Omega Healthcare Investors has a market cap of $3.8 billion and is part of the real estate industry. Shares are up 41.1% year to date as of the close of trading on Thursday.
TheStreet Ratings rates Omega Healthcare Investors as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, solid stock price performance, impressive record of earnings per share growth, compelling growth in net income and expanding profit margins. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.
Highlights from the ratings report include:
¦ OHI's revenue growth has slightly outpaced the industry average of 16.4%. Since the same quarter one year prior, revenues rose by 24.5%. Growth in the company's revenue appears to have helped boost the earnings per share.
¦ Powered by its strong earnings growth of 57.89% and other important driving factors, this stock has surged by 50.54% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, OHI should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
¦ OMEGA HEALTHCARE INVS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, OMEGA HEALTHCARE INVS INC increased its bottom line by earning $1.11 versus $0.46 in the prior year. This year, the market expects an improvement in earnings ($1.33 versus $1.11).
¦ The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Real Estate Investment Trusts (REITs) industry. The net income increased by 75.8% when compared to the same quarter one year prior, rising from $19.29 million to $33.92 million.
¦ The gross profit margin for OMEGA HEALTHCARE INVS INC is rather high; currently it is at 61.90%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 35.70% is above that of the industry average.
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Casino REITs may be the sector to watch in 2013!
GLTA
Bob
DR Horton -- >>> Today's Market News To Trade On: 5 Stocks Moving On News
January 30, 2013
http://seekingalpha.com/article/1143021-today-s-market-news-to-trade-on-5-stocks-moving-on-news?source=yahoo
Homebuilders
Readers know our opinion on the housing market and the bullish outlook we have for nearly all things related to housing. With the recent news that home sales were down not due to a lack of interest in purchasing housing but simply due to a lack of supply and inventory coupled with the news yesterday that housing prices continue to rise in the 20 cities in the Case-Shiller 20-City Index doubters have to buy into the bull story here and recognize that we are under built. It took a while to clear out the massive inventory we had built up and get market forces to correct to bring more buyers into the market which also has helped to drive down ratios such as the months of inventory ratios, but now we are in that proverbial sweet spot for homebuilders where there have not been enough homes built in the past few years to keep up with the natural rate of growth which is now rushing to the market to buy. This is why we are seeing such strong numbers at homebuilders and DR Horton (DHI) is a direct beneficiary of this.
The company reported earnings which more than doubled with orders up almost 40%. Even more bullish is the fact that the company's contract backlog now sits at $1.76 billion after rising 80%. The company is the largest homebuilder in the US by volume and is a great proxy for how the entire market is doing as they have the exposure to the entry level which helps us see how these new entrants to the market view the economy. Remember, for the rest of the housing market to do well it is required that a strong first time or entry level market exist to allow others to sell their homes in order to upgrade.
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>>> Yes, Housing Starts Surge, but Rentals Are the Drivers
20 Nov 2012
By: Diana Olick
CNBC
http://www.cnbc.com/id/49901568?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo
The headline number for housing starts was big, exceeding expectations and sending the home builder stocks on yet another tear.
Starts hit 894,000 (annualized) in October, over 50,000 more than the analysts forecast. Housing starts are now at their highest level since July 2008. (Read More: Good News Keeps Coming for Housing as Starts Surge)
“We expect the builder equities will react positively initially, but then fade through the day once the report is fully digested as 'multifamily' was the key driver of the results,” warned Stephen East at ISI.
There is no question that home builders are benefiting from tight supply in the existing home market and overall improved consumer confidence. That was apparent in the home builder confidence numbers released this week, which hit the highest level in six years. (Read More: Builders Bump Up Thanks to Drop in Existing Home Supply)
Single family housing starts hit historic lows and are now just rising from the ashes. That is why some of the comparisons, like single family starts (up 35 percent from a year ago), sound so monumental and push the stocks higher. But investors need to keep these numbers in perspective.
“Housing starts at 894,000 is near where they were at the depths of the 1981 and 1991 recessions and 60 percent below the peak in January 2006,” pointed out Peter Boockvar at Miller Tabak.
The October numbers were driven entirely by multifamily apartment starts, up 10 percent month-to-month and up 63 percent year over year. Why are developers putting up so many more apartments when housing is supposedly recovering? Because there is still big rental demand and low supply.
“The consensus view on supply remains that it is not a threat to apartment fundamentals in the near term. Overall, demand for apartments (driven by household formations) should continue to rise with deliveries, especially in high(er) barrier coastal markets,” analysts at Cantor Fitzgerald said in a note.
There has been a lot of talk of increasing household formation, but what some fail to realize is that household formation can be a single family owner-occupied home or an occupied rental unit. Younger Americans are in fact moving out of their parents’ basements, but many are moving into rental units, and that is also a formed household. (Read More: The Housing Recovery Is Getting Real)
Should investors be concerned about overbuilding in the apartment sector, given these huge jumps in starts coupled with the fledgling single family housing recovery? No.
“We’ve had four years of zero supply,” said David Toti of Cantor Fitzgerald. “There’s still a groundswell of demand. The shift from owning to renting is still moving in favor of the renter.”
Multifamily starts are now above 10-year averages. In fact they officially crossed them in October, but home ownership levels continue to contract. As for apartment performance? Landlords are raising rents and occupancies, and that does not point to any weakness, for now at least. (Read More: Existing Home Sales, Homebuilder Sentiment Rise)
So why then are the multifamily REITs all down on the starts numbers? They have actually been underperforming all year, as investors seek higher yield in other sectors, like industrial REITs. But another factor could be Archstone Inc., an apartment building owner and developer owned by Lehman Brothers Holdings. It said Monday that it plans to raise up to $3.45 billion in its initial public offering that may happen this year. Investors may be making room for Archstone, pulling out of others to get in to the new player. <<<
Leggett & Platt -- >>> Two Dividend Stars to Buy Now
By MoneyShow.com
Oct 31, 2012
http://www.minyanville.com/trading-and-investing/stocks/articles/LEG-NVE-WAG-MMM-dividend-stocks/10/31/2012/id/45425?camp=syndication&medium=portals&from=yahoo
Finding a big yield isn't the true measure of a quality income stock, so take your time in choosing since good dividend payers should be very long-term choices.
Regardless of what other factors you consider as part of your investing system, there are a few good metrics for everyone to keep in mind when considering buying dividend-paying stocks for income.
The first is to simply look at the dividend itself: How long has the stock been paying a dividend? Has it ever been cut? How often has it been raised? Companies that can pay or, even better, increase their dividends quarter after quarter and year after year are more likely to continue doing so in the future.
One easy way to find these stocks is to look at Standard & Poor’s list of “Dividend Aristocrats,” which are stocks that have increased their dividends every year for at least 25 years. The list currently comprises an impressive 51 companies, from 3M (NYSE:MMM) to Walgreens (NYSE:WAG).
Bedspring inventor Leggett & Platt (NYSE:LEG) was the latest Dividend Aristocrat to be recommended in the Dividend Digest. In the September 10 Dividend Digest Daily Alert, Investors Intelligence Editors Michael Burke and John Gray wrote: [LEG is] “only $3 away from its highest level since 2007. Breaking through there would open up the door for a move toward the all-time high of $30.68 from 2004. Overall, a clear primary uptrend, underpinned by trend line support, is underway since the March 2009 low.”
Since then, LEG has moved tantalizingly closer to its multi-year high at $26 and could actually break that level at any moment. Plus, being a dividend aristocrat, LEG has paid a dividend every quarter since the last quarter of 1987, and currently yields about 4.5%. Oh, and it doesn’t just make bedsprings anymore, the company is a diversified manufacturer of everything from steel wire to office chair bases.
Of course, history isn’t the only indication of a dividend’s safety. Another metric that income investors will find very useful in analyzing dividend-paying companies is free cash flow.
Free cash flow, simply, equals operating cash flow minus capital expenditures. In other words, it’s what’s left of income after the company spends what is has to. That number is important because, when all is going well, it’s where the money for dividends come from. (Companies that can’t afford to pay their dividends out of free cash flow are forced to either cut them or find the money elsewhere, which is usually only a temporary solution.)
Digests contributor Ingrid Hendershot of Hendershot Investments wrote about the importance of free cash flow earlier this year, writing: “Firms with strong free cash flows can invest in internal growth programs, fund acquisitions and provide consistent, value-creating returns to shareholders through growing cash dividends and share repurchases at attractive valuations. By following the cash a company generates, investors may determine if management is allocating the capital in shareholder-friendly ways.”
We’ve seen some companies with superb cash flow in the Dividend Digest recently. The latestDividend Digest featured not one but two recommendations of NV Energy (NYSE:NVE), a utility that is using its cash flow to raise its dividend and buy back shares. One of the recommendations came from Dow Theory Forecasts Editor Richard J. Moroney, who wrote:
“The arrow is pointing up at NV Energy, where sales rose 10% in the June quarter after nine consecutive quarterly declines. The consensus projects profit growth of 58% this year and 2% next year, and estimates are on the rise in the wake of profit surprises in the March and June quarters. The company raised its dividend 31% in May and now yields 3.8%. NV says it generates sufficient cash flow to support both dividend hikes of about 10% a year going forward, with enough left over to retire some debt as well.”
The last important metric I’ll address here is a stock’s dividend payout ratio. The payout ratio tells you how much of its earnings a company is giving to its investors. You can easily find the payout ratio by dividing a stock’s annual dividend payment by its earnings per share (EPS). For example, a company that reported EPS of $3 per share in 2011 and made four quarterly dividend payments of 25 cents each (for a total yearly dividend of $1) would have a payout ratio of 33%.
The primary red flag to watch out for when looking at payout ratios is a number that’s too high. With some exceptions for MLPs and other entities created specifically to pass along cash to investors, the payout ratio should generally show that the company has some cash left over to put back into the business, buy back shares and create a cushion for leaner times ahead.
A company handing over 90% of its earnings to shareholders, in other words, may have a hard time affording that same payment down the road. Younger, faster-growing companies generally hold on to more of their income for growth and stability than older, slower-growing companies that may feel the best use for the money is paying back shareholders.
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Lumber Liquidators -- >>> Another Company Benefitting from the Housing Renaissance
By William Bias
October 31, 2012
Tickers: LOW, LL, HD
http://beta.fool.com/stockdissector/2012/10/31/another-company-benefitting-housing-renaissance/15422/?ticker=LL&source=eogyholnk0000001
Housing starts (new construction) rose to a five year high of 872,000 according to an Oct. 17 article,. Stocks associated with building, repairing and remodeling homes are also hitting new highs. Hardwood flooring is a popular choice in newly built or renovated homes. With the arrival of the housing renaissance, Lumber Liquidators (NYSE: LL), a retailer specializing in hardwood floors, stands to benefit.
Qualitative Elements
Lumber Liquidators recently laid the foundation for future success in the form of infrastructure investment, strategic real estate purchases, and building productive relationships with suppliers and customers.
In 2010 and 2011 Lumber Liquidators invested heavily in an information technology system that put a temporary burden on sales, gross margins, and free cash flow; a necessary move to keep track of costs and customer preferences. Other moves to improve infrastructure included building and supplying new distribution centers and stores.
The company employs strategic thinking in real estate when opening a new store by looking for areas accessible from main roads and in areas with lower rent. It adapts to existing buildings and enters shorter lease terms. If a more optimal setting becomes available Lumber Liquidators can take advantage of it.
Lumber Liquidators’ commitment to superior quality and low price stems from its relationship with mills. It sets the qualitative standards by which the mills have to abide. If the mills aren’t up to snuff, Lumber Liquidators moves on to someone else. Lumber Liquidators also ships directly from the mills to the stores to save on handling costs whenever possible.
Lumber Liquidators maintains good customer relationships with a call center, employing people knowledgeable about flooring to answer questions by e-mail and telephone.
Fundamentals
Lumber Liquidator's revenue increased 92% over the past five years (see chart below).
The implementation of the integrated information technology system mentioned above and the opening of new stores near established ones put a friction on growth over the past couple of years. As the company grappled with the implementation of the new system, product delays ensued, costing the company business. The opening of new stores in close proximity to established ones resulted in a comparable stores decrease of 2% in 2011. However, in the most recent quarter Lumber Liquidators’ sales increased 19%.
With the implementation of the new information system complete, the company should see less product delivery disruptions and loss of business. Lumber Liquidators saw a higher number of invoiced customers with more sales per invoice. A higher number of established stores, combined with increased sales of molding also helped drive the sales increase. Comparable store (a store open longer than a year) sales increased 12% in the most recent quarter.
LL Revenue TTM data by YCharts
As you can see in the chart below, gross margins (gross profit divided by sales expressed as a percentage) remained relatively low for the past couple of years. Margins were held low by transportation costs, expenses related to the information technology system, and underperforming products.
According to the latest earnings report, gross margin increased 250 basis points. Buying directly from mills, especially in lower cost regions such as Asia, drove the cost of merchandise lower. The optimal cost of merchandise occurs when the company bypasses warehouses and ships straight from the mills to the stores.
LL Gross Profit Margin TTM data by YCharts
Free cash flow (operating cash minus capital expenditures) dipped into the negative for the past couple of years (shown in the chart below). Investment in store infrastructure such as the information technology system, new stores, and warehouses contributed to capital expenditures.
In 2012, with the infrastructure firmly in place and fewer capital expenditures, free cash flow expanded 68%. Of course, increased foot traffic had something to do with this as well. Inventory buildup in anticipation of higher demand will produce temporary friction on cash flow.
LL Free Cash Flow TTM data by YCharts
Lumber Liquidators possesses a good balance sheet. Cash to stockholder’s equity stands at reasonable 18%. It possesses no long-term interest bearing debt. Total debt to equity stands at 38%, below my personal threshold of 85%.
Management-Ownership
I always like to invest in companies in which management owns a great deal of stock. Management with a significant stake in the enterprise will take better care of it and try to make it as successful as possible. The founder and chairman of the board, Tom Sullivan, owns 4.5% of the company’s stock.
Competition
Lumber Liquidators competes in a highly fragmented market. According to Lumber Liquidator's 2011 10-K, Lowe’s (NYSE: LOW), Home Depot (NYSE: HD) and Lumber Liquidators together made up 37% of hardwood flooring sales. The remainder of the market includes independent retailers and smaller chains that offer other types of flooring and home improvement solutions.
Home Depot and Lowe’s don’t specialize in just hardwood flooring, so they may not be able to offer the variety of Lumber Liquidators, and their employees may not be as knowledgeable with so many products on their shelves. Also, the big box retailers don’t buy straight from the mills, which increases their merchandise cost.
Lumber Liquidator's market share continues to increase due to the decline in the number of independent retailers under difficult macroeconomic conditions. Independent retailers purchase merchandise on an intermittent basis, which prevents them from offering the steady business that suppliers crave compelling them not to offer price breaks. Small retailers also buy from local mills and distributors, which increases cost.
Weighing the Risks
Lumber Liquidators’ meteoric 205% rise in stock price year to date has resulted in a higher valuation. The P/E ratio of this company stands at 36. Any future earnings disappointments would butcher its stock price.
Political risk for Lumber Liquidators resides in the high range, with 42% of the company's products sourced from Asia. Currency fluctuations and possible civil unrest in the region could disrupt it’s supply chain.
The company’s prospects due to housing growth and an excellent balance sheet compel me to give Lumber Liquidators a low fundamental risk rating.
Conclusion
Lumber Liquidators will continue to deliver a high quality product at a low price. Good standing with suppliers will ensure that prices stay low. Keeping customers happy will compel them to come back. The housing recovery, good financials, management ownership, and greater market share will move the stock price forward.
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