Alexandria Real Estate Equities, Inc. (ARE) | Daily Alert April 29
Landlords and lenders have taken it on the chin since the world shut down. And until this place is actually open for business once again, many REIT (real estate investment trust) investors are unfortunately rolling the dice on the next rent payment coming in, the next commercial mortgage payment being made.
To be fair, however, select REITs are going to be OK, and many of them are selling at bargain prices right now. In the short run, REIT prices can move together (for example, drop when the 10-year Treasury yield rises). However, as weeks turn into months and years, we usually see a great variation in the performance of REIT stocks.
The REIT sector varies widely because, well, it really isn’t a sector at all. It’s a corporate vehicle that let’s firms get a pass on taxes provided they pay most of their profits to their shareholders as dividends.
A cell tower landlord like Hidden Yields holding American Tower (AMT) and a shopping mall owner like Simon Property Group (SPG) may both be REITs, but their cash flows are completely different. And their year-to-date returns reflect the diverging outlooks for cell phone usage and mall traffic:
(Think about Amazon (AMZN) and Macy’s (M). Both are technically retailers, but they have little in common. Ironically, AMZN is a major holding of many retail ETFs. Why investors would want to also own the firms that are being eaten alive by Bezos & Co., I do not understand.)
Buying a REIT ETF these days carries similar “loser risk.” This is a stock picker’s market, and we should be especially picky when combing through the wash out in REIT-land. Many stocks have been trashed for good reason, but bargains do exist. To find them, we should focus on the landlords who derive their income from “asset-lite” businesses, which often happen to be tech plays.
There’s a reason why the NASDAQ has whipped the S&P 500 in this rough start to the 20s. Many of us are sitting at homes with our cell phones nearby, Zoom (ZM) meetings running while we shop online at Amazon! The theme here is that our attention and our wallets are all focused on tech, and Mr. Market knows this:
We don’t talk tech often here, as most NASDAQ firms tend to pay little or no dividends. However, there is a backdoor way that we can profit from tech’s strength and collect dividends, and that’s by cherry-picking REITs (which do yield something) that rent to tech firms. We already discussed AMT—let’s get into a few more ideas for our shopping list.
Alexandria Real Estate Equities (ARE) is an undercover tech play. It owns offices and labs in what it calls “innovation clusters,” neighborhoods where companies and government agencies in a particular research area are concentrated.
Once tenants are in these clusters, they tend to stay. Heading into the pandemic, Alexandria boasted a sky-high 96.8% occupancy rate. Innovation-focused companies often let their employees work from home, so the current situation is nothing new. I would expect most are paying their rent just fine today, with no plans to shed the office.
Brett Owens, Contrarian Outlook, BNK Invest Inc., 500 North Broadway, Suite 265, Jericho, NY 11753 USA, 516-620-4294, email@example.com, April 22, 2020
Omega Healthcare Investors, Inc. (OHI) | Daily Alert May 1
Investors were relieved to see Omega Healthcare Investors, the Maryland-based assisted living real estate investment trust (REIT), announce that it once again was paying a quarterly dividend of 67 cents per share. It reports first-quarter earnings in early May.
It rallied sharply after CEO Taylor Pickett issued a comforting statement to investors, “We are heartened by the recent progress on relief measures at the federal and state levels, including Medicaid reimbursements, which we believe may offer meaningful support for our skilled nursing and assisted living facility operators working so hard to meet the needs of their residents.”
Omega has been the most volatile of the dividend-paying stocks. The fear is that Omega Healthcare will see defaults on its triple-net lease loans with nursing homes and assisted living facilities as it saw in Texas a few years ago. Until this crisis, Omega was doing extremely well, with profit margins of 37%. The stock hit $42 a share in January. Suddenly, it fell in half, only to recover quickly (it actually rose 49% in one day in March!). It clearly is back on its way to recovery.
Mark Skousen, Forecasts & Strategies, markskousen.com, Eagle Financial, 300 New Jersey Ave. NW, Suite 500, Washington, D.C. 20001, May 2020
SVB Financial Group (SIVBP) | Daily Alert May 11
SVB Financial Group; 5.25% Fixed Rate, Non-Cumulative Perpetual; Par $25.00; Current Annualized Yield 5.29%; Call Date 02/15/25; Yield to Call 5.42%.
SVB Financial Group (SIVB) is a bank holding company based in Santa Clara, CA. Since inception, the company has assisted innovators in the technology and biotech sectors, along with their investors. The banking company is a key advisor and lender to companies in sectors such as Hardware & Frontier Technology; Software & Internet; Life Sciences & Healthcare; Energy & Resource Innovation; Private Equity & Venture Capital; and the Premium Wine Industry.
SIVB has historically achieved strong growth, driven by the exceptional growth of its clients and their related industries. The company reported first quarter 2020 net income of $132.3 million or $2.55 per share, missing analysts’ $3.07 estimates. Results were down sharply, due to higher loan loss provisions on top of the expected increase in realized loan losses, tied to weakening economic conditions arising from the COVID-19 pandemic.
Despite the likelihood of higher loan loss provisions and lower earnings throughout 2020, we are constructive on SVB’s outlook, given the banking company’s strong capital position and present low level of non-performing loans.
Dividends on this issue are taxed at the 15%-20% rate. This preferred is split-rated between investment grade and non-investment grade. However, senior debt ratings are investment grade by both Moody’s and S&P.
As a result, we recommend this issue for low- to-medium-risk taxable portfolios. Buy up to $25.50 for a 5.15% current yield and a 4.79% yield to call.
Martin Fridson, CFA, Income Securities Investor, www.isinewsletter.com, 800-472-2680, May 2020