In my monthly newsletter, the Forbes Real Estate Investor, I cover over 150 Real Estate Investment Trusts (or REITs) – with useful data, including recommendations that range from Strong Buy to Strong Sell.
A few of my picks are referred to as “Spec Buys,” suggesting these REITs are speculative, and warning investors that these picks are more volatile.
Yet, for the higher risk investor, I wanted to include the “Spec Buy” category to target REITs that fall between the Buy and Hold ranges.
According to the English Oxford Dictionary speculative “involves a high risk of loss” – and while that’s true in our REIT recommendation nomenclature, the potential for enhanced returns is also ubiquitous.
Today, I am providing readers with my list of top “Spec Buys” for 2019:
Pennsylvania Real Estate Investment Trust’s (PEI) investment focus is retail shopping malls in the eastern half of the U.S., primarily the mid-Atlantic region, with 28 properties in nine states, including 21 shopping malls, four other retail properties and three development or redevelopment properties, totaling over 22.5 million square feet of retail space.
PEI’s FFO payout ratio (rolling 12-month basis) was 55%, a healthy margin of safety considering the fact that there are just a few Sears stores to redevelop in the portfolio. However, the impact of JCPenney (PEI has 14 locations…) could substantially impact PEI’s cash flows if JCP were to close stores. The current dividend yield is 10.85% and I like the fact that PEI was “ahead of the curve” with reducing exposure to Sears.
Braemar Hotels & Resorts (BHR) invests in luxury hotels and resorts. In Q3-18, their portfolio consisted of twelve properties, 3 of which were under renovation. Comparable RevPAR increased 1.8% (Q3 year-over-year) to $234.04 for all hotels on a 0.4% increase in ADR and a 1.4% increase in occupancy. AFFO was $0.34 per diluted share for the quarter; adjusted EBITDAre was $29.5 million for the quarter, compared with $28.4 million for the prior year quarter, reflecting 4% growth. Assets totaled $1.6 billion, with $993 million in mortgage loans.
Pres/CEO Richard Stockton said the company “is well-positioned to capitalize on strong consumer confidence trends and a healthy macroeconomic outlook. Operationally, we’ve made significant progress on the asset management and capital investment front and remain on track with our Autograph Collection conversions at both the Courtyard Philadelphia Downtown and Courtyard San Francisco Downtown.” Dividend yields 6.49%.
Arbor Realty Trust, Inc. (ABR) provides loan origination and servicing for multifamily, seniors housing, healthcare, and other diverse commercial real estate assets. Headquartered in Uniondale, New York, Arbor manages a multibillion-dollar servicing portfolio, specializing in Fannie Mae, Freddie Mac, and other government-sponsored enterprises, as well as CMBS, bridge, mezzanine, and preferred equity lending.
Last month, the company priced its public offering of 8,700,000 shares of common stock for total expected gross proceeds of approximately $102.7 million (before underwriting discounts and commissions and expenses), with an option to buy back up to an additional 1,305,000 shares of its common stock). Net proceeds are intended to be used for business investments and general corporate purposes.
In its 3Q-18 earnings, Arbor reported GAAP net income of $0.36 per diluted common share; AFFO of $0.37 ($0.42 per diluted common share excluding a one-time loss from early repayment of debt). The company’s cash dividend on common stock reflected a 42% increase from a year ago, and 8% higher than last quarter. Dividend yields 9.31%.
Landmark Infrastructure Partners LP (LMRK) is a real estate and infrastructure company that acquires, owns, and manages a portfolio of real property interests and infrastructure leased to companies in wireless communication, outdoor advertising and renewable power generation.
Landmark’s real property interests underlie their tenants’ infrastructure assets, including cellular towers, rooftop wireless sites, billboards and wind turbines. Landmark’s assets, primarily in the U.S., are effectively triple net tenant lease arrangements with contractual rent escalators, providing stable, predictable, and growing cash flows.
Landmark’s Q3-18 earnings (compared to third quarter 2017) showed rental revenue increases of 30% to $17.6 million. AFFO increased 6% to $0.34 per diluted unit. The company plans to maintain its existing quarterly distribution of $0.3675 per common unit, to retain cash flow in the near term to support higher growth and to fund acquisition and development activities. Dividend yield is 11.08%
As regular readers know, I’m a big fan of internally managed REITs, as external management tends to increase risks to investors, with potential conflicts of interest, and added expenses in the form of fees, and more complexity.
Happily, Uniti Group Inc. (UNIT) is internally managed. The company acquires and constructs “mission critical” communications infrastructure, and is a leading provider of wireless infrastructure solutions for the communications industry. As of September 30, UNIT owns 5.4 million fiber strand miles, approximately 850 wireless towers, and other communications real estate throughout the U.S. and Latin America.
For Q3-18, UNIT had consolidated revenues of $252.6 million. AFFO attributable to common shares was $110.0 million, or $0.62 per diluted common share. Uniti Fiber contributed $70.1 million of revenues with over $1.3 billion of revenues under contract (a 3% increase over pro-forma year-ago levels). Uniti Towers contributed $4.3 million of revenues. Uniti Leasing had revenues of $174.8 million.
Uniti’s quarterly cash dividend of $0.60 per common share is payable January 15th, to stockholders of record on December 31, 2018. The dividend yields 12.59%.
A closing note about owning “spec buys”… I recommend limiting positions to not more than 1% each, in your equity portfolio. May I also suggest adding a holiday stocking stuffer… a full year of my newsletter, Forbes Real Estate Investor, for complete recommendations on over 150 publicly-traded REITs – every month. Subscribe here.
Note: I wrote earlier this week on “5 Small Cap REIT Picks For 2019,” and will soon be writing on “5 REITs To Avoid in 2019″…stay tuned…
I own shares in PEI, BHR, LMRK and UNIT.