Best REIT in 2016

Best REIT Screener

There are hundreds of listed REITs. A Screener can be a useful tool to narrow down REITs based on a pre-set of criteria which matches what investors investors use to select a stock, essentially speeding up the stock selection process.

Less time is narrowing down the sector and more can be spent on analyzing individual companies.

A downside is the potential of missing opportunities that are filtered out. This can be managed through running sensitivities by adjusting criteria to see those that were marginally filtered out.

We like to used FINVIZ to screen the REIT sector based on the requirements.

  1. Stocks prices that are trading below NAV or Book Value (Potential value and mispricing made by the market)
  2. Total Market capitalization is larger than $1 billion dollars (ensure there is sufficient liquidity in the stock)
  3. Above 1 and 2 applied to the Diversified REIT sector only.

Best REIT Screener

REIT Screener 3

The result is sorted by REITs that have the highest discount to NAV. The above criteria should be the starting point of analysis rather than taking it at face value.

There could be a number of reasons a REIT is trading REITs trading discount below NAV. This could range from over priced real estate on balance sheet to lack of faith in management in executing shareholder value decisions.

Usually the stock of REITs trading above book have a high dividend yield. However the market could be skeptical on the trust maintaining current dividend rates and essentially pricing in a dividend cut.

The above example is based on screening the first 2 crtieria on the diversified REIT sector. FINVIZ can breakdown the REIT market along a number of sub markets:

  • Diversified
  • Hotel
  • Healthcare
  • Industrial
  • Retail
  • Office
  • Residential

REIT Market Screening

Using the same criteria above on the residential REIT market presents a different a result.

Residential REIT screen shows only 4 stocks larger than $1 billion market cap are trading below book value. This could mean investors are currently favoring the residential real estate market verses diversified REITs.

This can have implication for relative value strategies to value investors picking up cheap companies in diversified or even momentum investors to trend follow residential REITs.

REIT Screener 4

 

 

Other criteria can be used to screen REITs include

  • Dividend yield (from high to low or only show REIT yield above certain percent)
  • Different size criteria (from largest REIT only to REIT within a certain market capitalization range)
  • Earning growth of the stock driven by consensus estimates
  • Volume of actual stock traded daily (vs total market cap)
  • % of total stock sold short (short squeeze opportunities or short REIT ideas)
  • Technical criteria like best performing REIT year to date or last 12 month.

Blackstone Investing through the cycle

Blackstone (BX) commonly known as one of the premier private equity houses has built a truly global real estate private equity franchise. While we cover number of REITs and REIT ETF.

We also like non REIT stocks but are on the periphery of the real estate space. The stock has been on a tear but recently it has faced a number of headwinds in the underlying investment investment from Fed raising interest rates to potential increase in carried interest tax.

Investment Thesis

We have kept an eye of BX due to its real estate presence which has been felt in the performance of REITs that are takeover targets. The mandate for Blackstone real estate fund has always been to invest throughout the cycle in up and down markets.

This is seen from the Equity Office merger near the top of the market which it profess to made multiple of original investment as well as picking up assets in distressed environment around the globe.

BX has more than $300 billion asset under management with significant room to invest its dry power. The funds which have been committed by the limited partners but not drawn by the general partner for investment.

 

Blackstone Stock Performance

 

Blackstone Dividend History

Date Dividend
Jul 2015 $0.74
Apr 2015 $0.89
Feb 2015 $0.78
Oct 2014 $0.44
Jul 2014 $0.55
Apr 2014 $0.35
Feb 2014 $0.58
Oct 2013 $0.23
Jul 2013 $0.23
Apr 2013 $0.30
Feb 2013 $0.42
Nov 2012 $0.10
Aug 2012 $0.10
May 2012 $0.10
Mar 2012 $0.22
Nov 2011 $0.10
Aug 2011 $0.10
May 2011 $0.20
Mar 2011 $0.32
Nov 2010 $0.10
Aug 2010 $0.10
May 2010 $0.10
Mar 2010 $0.30
Nov 2009 $0.30
Aug 2009 $0.30
May 2009 $0.30
Nov 2008 $0.30
Aug 2008 $0.30
May 2008 $0.30
Mar 2008 $0.30
Nov 2007 $0.30

 

BX has been collecting the performance fee at this stage of the cycle where the early funds are being harvested. We feel this can be sustained in the near future as underlying direct real estate markets is doing well on back of stronger economy.

We are however cautious in the medium term futures as current earnings are inflated due to low tax rates. If any revision to carry interest is made post the 2016 election. Then future Blackstone earnings will get hit and deflated by at least 10 to 20%. This is not helped by the issue being a rally cry in the election primaries.