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The other day, I introduced you to a handful of investments that generate 6% income in the Real Estate sector… from five publicly-traded Real Estate Investment Trusts (REITs).
No, these are not those K-1 thingy’s you have to wait for, and delay filing your tax return, or make you wait to get a refund.
Nope. These… are some of the battle-tested, portfolio-worthy, income-paying investments whose dividends hit your account every quarter. Some even can deliver the cash (or reinvest) every month – and I’ll share about one of those monthly-payers, today…
Please recall that REITs, by law, under an act of Congress (circa 1960), must distribute most of their taxable income (at least 90%), paid out directly to investors, in the form of dividends. That’s a nice way to participate in profits and returns, when owning Real Estate.
(To whet your appetite, we’ll reach for some “Great 8s” – commendable REIT investments, paying 8% plus… in an upcoming article.)
But for today, let’s get you thinking about these five players, and how they might fit into your portfolio.
Reminder: as editor of Forbes Real Estate Investor, with over three decades of real-world real estate experience as a developer, landlord, investor, analyst, and writer, I enjoy applying my experience, education, and hard-won lessons, to confidently offer these recommendations. Of course, you shouldn’t bypass your own due diligence, to discover how these might work for you…
(Note: the market, in general, has been enjoying a run-up in 2019, so in some instances, valuations may be a tad richer when buying at today’s levels. Newsletter readers can consult our Intelligent REIT Investor Lab, for our Current Value price recommendations.)
Outfront Media, Inc. (OUT) connects brands with consumers outside of their homes through one of the largest and most diverse sets of billboard, transit, and mobile advertising & outreach assets in North America. The company is also implementing digital technology to enhance the ways advertisers engage people on-the-go. Q3-18 AFFO (adjusted funds from operations) came to $86.4 million (an increase of 10.5% over the same prior-year period) from increased local advertising revenues, a return to growth in national client spending, and double-digit increases in revenue from digital products.
Reported billboard revenues increased 6.7%; transit and other revenues increased 3.0%, due to growth in digital transit displays. Clients include the New York Metropolitan Transportation Authority. We currently recommend OUT as a STRONG BUY; not surprising – just before Christmas, its share price hit a 52-week low. The current dividend yields 6.74% (as of Friday’s close).
Blackstone Mortgage Trust, Inc. (BXMT) primarily originates and purchases senior mortgage loans collateralized by properties in the U.S. and Europe. The company is managed by Blackstone (BX), a private equity world leader in alternative assets with nearly $472 billion in assets under management (AUM); of that, $136 billion AUM is within the real estate sector. Blackstone’s dominant platform in equity and debt provides valuable real-time proprietary market data that enables them to identify mispriced and/or out-of-favor asset classes more rapidly than competitors; and BXMT’s relationship with “big brother” Blackstone Real Estate offers the commercial mortgage REIT thorough access to proprietary deal flow, and property and market information.
Last week’s Q4-18 and Full-Year results showed BXMT grew the portfolio 42% in 2018 to a record $15.8 billion, with $10.7 billion in originations during the year (52 loans), and generating $2.90 of Core Earnings per share. Their Loan-to-Value averages 62%; and 96% of loans are floating rate, LIBOR-based, insulated from the valuation impact of rising rates. Credit facilities are also LIBOR-indexed and match fund assets. Blackstone Mortgage’s portfolio credit quality remains high, and I like having a piece of many trophy assets around the globe. BXMT is a BUY, with a dividend yield of 7.39%.
VEREIT Inc. (VER) is a net lease REIT poised to profit. About a year ago, the company sold Cole Capital, its non-traded REIT business, to an affiliate of CIM Group. Significant, because it eliminated some of the complexity overhang surrounding the company’s competing businesses, and thus simplified its core business model – to focus on its large, diversified single-tenant real estate portfolio. VEREIT owns about 4,000 free-standing buildings, totaling $15.5 billion in assets, leased to a variety of retail, restaurant, office, and industrial tenants. The company is internally-managed with a structure that provides stable and predictable rent stream payments. VEREIT’s other lawsuits have been dissipating, and the company has substantial liquidity to use for settlements, and to reduce debt.
Last week, VEREIT settled with additional shareholders who’d opted out of the remaining class action lawsuit, having to do with restated financial statements from 3 to 4 years ago. Investors, however, can benefit, as VEREIT shares are trading substantially below its bellwether peers, such as Realty Income (O), National Retail Properties (NNN), and W.P. Carey (WPC). Investors can take further comfort that VEREIT’s dividend is well-covered by AFFO (76% payout ratio), with a solid 6.65% dividend yield (as of Friday’s close). VER is a BUY.
Apple Hospitality REIT, Inc. (APLE) [and NOT to be confused with Apple, Inc. (AAPL)], owns more than 30,800 guest rooms, in 88 markets throughout 34 states. Franchised with industry-leading brands, the company’s portfolio consists of 241 hotels – 114 Marriott-branded, 126 Hilton-branded, and one Hyatt. It’s one of the largest portfolios of upscale, select-service hotels in the United States, serving business and leisure travelers, in high-quality hotel properties with attractive upside potential, in urban, high-end suburban and developing markets. Q3-18 results were impacted by restoration activities related to prior year Hurricanes Harvey and Irma, Mid-Atlantic Hurricane Florence in September, and competitive pressures in markets.
The company also contracted the sale of 17 hotels for approximately $181 million; sold two hotels in Columbus, Georgia, for $10 million (breakeven), and repurchased over 1.6 million shares of stock since quarter end. Apple Hospitality spent approximately $43 million in capital expenditures the first nine months of 2018, with another $25 to $30 million anticipated for the rest of the year – including renovation projects for approximately 20 to 25 properties. Although we are underweight in the Lodging sector, we believe Apple offers investors an attractive dividend of 7.33% (paid monthly). We maintain a BUY.
Ladder Capital Corp (LADR) provides fixed-rate and floating-rate commercial mortgages, mezzanine financing, and preferred and direct equity to partners. Since Q1-15, the company has generated an impressive 8.5% CAGR (compound annual growth rate) – a return unique among its peers; assets now total over $6.4 billion. Q3-18 generated $63.4 million of core earnings, with a core after-tax return on average equity of 17.1%; the company also originated $676.7 million of loans, and its portfolio of balance sheet loans increased to $3.8 billion – almost $1 billion over the prior four quarters.
Ladder is the only internally managed commercial mortgage REIT; insider ownership exceeds 12%. With a low payout ratio, and special “true up” dividend in recent years from profitable equity deals with one-time power boosts, Ladder rewarded investors several weeks ago with a special dividend of $.23 per share (on top of the regular Q4-18 dividend of $.34 per share). As 2018’s top-performing commercial mortgage REIT, Ladder is also my 2019 top choice in the category, due to its strong earnings, dividend growth record, and best-in-class management team. LADR’s dividend yields 7.4%. We maintain a BUY.
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I am long OUT, BXMT, VER, APLE, and LADR.