Red and White Classic Christmas Stockings
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‘Tis the season to fill up the stockings with some attractively priced real estate investment trusts (or REITs). However, recognizing that most of all of my holiday shopping is done, I decided that I would buy myself a gift by adding a few shares to my own stocking this year.
However, that could be difficult, as many REITs have soared in price, the Vanguard Real Estate ETF (VNQ) is up 24.2 percent year-to-date and the Fidelity MSCI Real Estate Index ETX (FREL) is up 24 percent.
As a deep value investor, the objective is to screen for the cheapest stocks to own, without sacrificing quality. Using the watch analogy, I want to own a Rolex for the price of a Timex.
As a I scan the collective U.S. REIT universe, I find three names that aren’t priced for perfection and that have impressive fundamentals. All three of these REITs are recognized for their high dividend quality, namely that the distributions are well-covered, and management has shown discipline by raising their dividend consistently.
3 REIT Stocking Stuffers
Simon Property Group (SPG) is a mall REIT that owns an impressive portfolio that consists of 233 retail estate properties including Malls, Premium Outlets® and The Mills® comprising 191 million square feet in North America, Europe and Asia. The company is a member of the S&P 100 company with a total market capitalization of $89 billion and an equity market capitalization of $55 billion.
Shares have retreated significantly year-to-date, pulling back by 13 percent, creating a wider margin of safety. Valuation metrics such as P/FFO (12.1x) and dividend yield (5.8%) make this retail REIT an especially attractive Strong Buy. We believe shares could return 25 percent or greater, which is the reason we maintain a Strong Buy.
Tanger Outlets (SKT) is another Strong Buy in which shares in this specialty “pure play) outlet REIT have declined by over 27 percent year-to-date. The company owns 39 outlets in 202 states and Canada, and its portfolio occupancy has never dropped below 95 percent since going public in 1993.
More impressive, Tanger has increased its dividend each year and paid an all-cash dividend every quarter since its IPO. This means that even through recessions, Tanger has always bumped the dividend, signaling that management is committed to driving shareholder value.
Shares now yield 9.5 percent with a P/FFO (price to funds from operations) multiple of 6.6x (historical norm is 16.0x).
The final stocking stuffer is Brookfield Property (BPY) is a limited partnership run by Brookfield Asset Management and Brookfield Property (BPR) is technically a subsidiary that owns all its core retail real estate assets. However, in reality these two stocks are economically identical, and the only difference is in how they are taxed.
BPY/BPR’s long-term goal is to deliver 5% to 8% dividend growth for investors, and in the future management’s $7 billion growth backlog is expected to drive 7% to 9% FFO/share, that supports its 5% to 8% long-term dividend growth plans.
BPY/BPR is one of the best high-yield blue chip REITs you can buy today, shares are yielding 7.2 percent. As a Strong Buy, we also believe this stocking stuffer could return 25 percent annually.
I own shares in SKT, SPG, and BPY.