2 REITs All Investors Should Consider Buying

seekingalpha04-30

Some REITs clearly stand out for their superior business models.They can deliver above-average returns with below-average risk.Here are 2 examples that most investors should consider owning. ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\n2 REITs All Investors Should Consider Buying\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-30 02:22 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4687257-2-reits-all-investors-should-consider-buying><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Some REITs clearly stand out for their superior business models.They can deliver above-average returns with below-average risk.Here are 2 examples that most investors should consider owning.   ...</p>\n\n<a href=\"https://seekingalpha.com/article/4687257-2-reits-all-investors-should-consider-buying\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"O","symbol_name":"Realty Income Corp","start_time":0,"source_url":"https://seekingalpha.com/article/4687257-2-reits-all-investors-should-consider-buying","article_id":"2431535810","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/828348136/image_828348136.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2431535810","pubTimestamp":1714414925,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"And it is still early days for Canadian Net REIT. It is still tiny, and I think that it can keep this going for a few more decades. But today, it is offered at a cheap valuation because it is going through a speed bump. The surge in interest rates and the crash of the REIT market have made its cost of capital too expensive to pursue new acquisitions and temporarily stopped its growth. This pushed the REIT to sell a few properties instead to pay off some debt in 2023. Even then, the REIT was still able to maintain its FFO per share and hiked its dividend in 2023: Canadian Net REIT That's quite phenomenal, a","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"O":"Realty Income Corp","CFA.SI":"NikkoAM-STC Asia REIT","ISBC":"投资者银行","BK4231":"零售房地产信托","CFA":"VictoryShares US 500 Volatility Wtd ETF","BK4211":"区域性银行","BK4215":"住宅房地产投资信托","BK4585":"ETF&股票定投概念","BK4080":"零售业房地产投资信托","BK6027":"贸易公司与经销商","BK7024":"系统软件","VNQ":"不动产信托指数ETF-Vanguard","BK4588":"碎股","MAA":"MAA房产信托","CPT":"卡姆登物业信托","CPT.AU":"Cipherpoint Ltd","BK6520":"工商业服务概念"},"translate_title":"2所有投资者应考虑购买的房地产投资信托基金","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CFA":1,"VNQ":1,"O":1,"MAA":1,"ISBC":1,"CPT.AU":1,"CPT":1,"CFA.SI":1,"RS1.SI":0.61},"content_text":"Some REITs clearly stand out for their superior business models.They can deliver above-average returns with below-average risk.Here are 2 examples that most investors should consider owning.   chaofann The real estate investment trust, or REIT (VNQ), market is vast and versatile with over 1,000 Real Estate Investment Trusts worldwide investing in 30+ countries and 20+ property sectors. Therefore, there is truly something for everything. There are REITs that are well-suited for income investors. Others are better for growth investors. And some may even attract the interest of deep value activist investors. However, there is a minority of REITs that I think most investors should consider for their portfolio. They stand out in that they have uniquely attractive business models capable of consistently generating superior returns. Therefore, they make ideal \"portfolio anchors\" for most REIT investors. Here are two good examples of that: Canadian Net REIT (NET.UN:CA) I have previously described Canadian Net REIT as an early day version of Realty Income (O). Today, Realty Income is a massive company, and its large size will likely hurt its future growth prospects. Moreover, the net lease market in the U.S. has also become very competitive, reducing the size of its investment spreads. But in its early days, Realty Income was very rewarding to its shareholders, earning 15-20% annual total returns to its shareholders. It was able to offer such high returns because:  It was a lot smaller It used more leverage Its spreads were larger because there was less competition.  As a result, it grew at a much faster pace. This brings us to Canadian Net REIT. As said, it is an early day version of Realty Income that's operating in Canada.  It is tiny with a $100 million market cap. It uses a 50% LTV, which is above average, but its debt maturities are long and well-staggered. It has historically been able to earn large spreads because Canada is less competitive, and this has allowed it to grow at a very fast pace.    Canadian Net REIT This rapid growth in funds from operations (\"FFO\") per share combined with its dividend has already resulted in huge returns for shareholders. In the 10 years following the great financial crisis, Canadian Net REIT was one of the most rewarding REITs that I know. Investors earned a 10x on their money without even counting the dividend! And it is still early days for Canadian Net REIT. It is still tiny, and I think that it can keep this going for a few more decades. But today, it is offered at a cheap valuation because it is going through a speed bump. The surge in interest rates and the crash of the REIT market have made its cost of capital too expensive to pursue new acquisitions and temporarily stopped its growth. This pushed the REIT to sell a few properties instead to pay off some debt in 2023. Even then, the REIT was still able to maintain its FFO per share and hiked its dividend in 2023: Canadian Net REIT That's quite phenomenal, all things considered, and the future looks bright. Interest rates are expected to be cut later this year and with that, the management expects a gradual recovery in the acquisition market, which would allow the REIT to return to growth. But even if that's not the case, Canadian Net REIT is no rush. It has no major maturities until 2027, it retains nearly 50% of its cash flow for deleveraging, its leases enjoy CPI-based rent adjustments, and they are relatively short at just 6 years on average, and its releasing spreads are in the 5-10% range. This should provide a good margin of safety even if interest rates remain higher for longer: Canadian Net REIT And priced at just 8x FFO, a 20% discount to NAV, and a near 7% dividend yield, it really does not take much growth to earn strong total returns. The management is now also buying back shares to create further value for shareholders while their equity is still discounted. So how I see it is that heads, I win; tails, I win big. If rates remain high and REITs remain depressed, Canadian Net won't be able to grow much, if at all, but it will still earn significant cash flow and gradually pay off debt and buy back shares to create value for shareholders all while paying a big dividend. And if rates are cut and REITs recover, its rapid growth will resume, and its share price will reprice a lot higher.   Canadian Net REIT BSR REIT (HOM.U:CA / OTCPK:BSRTF) Previously, we explained that Canadian Net REIT is uniquely attractive due to its differentiated strategy, which allows it to grow externally by raising capital and reinvesting it at a large positive spread, resulting in strong growth on a per-share basis. BSR REIT is more simple than that. Its strategy is nothing exceptional. It owns apartment communities that generate rental income, and it is not even seeking to grow externally. The cap rates in its sector are too low relative to its cost of capital anyway. But BSR is uniquely attractive because of its assets and their long-term organic growth prospects. The REIT went through a multi-year portfolio repositioning leading up to the pandemic, and as a result, it is today almost exclusively invested in affordable apartment communities of rapidly growing Texan markets. Most of its assets are in Dallas, Austin, and Houston: BSR REIT   BSR REIT These markets are expected to enjoy some of the fastest same-property NOI over the coming decade because: They are enjoying very fast population and job growth as increasingly many people and businesses relocate there to benefit from tax and cost savings and a more business-friendly environment. The current rent-to-income ratios are today still far below those of coastal markets. Often, they are today up to 2x lower. BSR's units, specifically, today only charge about $1,500 of monthly rent on average, which is very low relative to the ~$80,000 annual income of its residents. At the same time, housing affordability is at its lowest in a very long time due to the surging home prices, high cost of construction, and elevated interest rates. Texas has some of the highest property taxes in the country, but there is significant political momentum toward lowering these taxes, which could rapidly boost same property NOI. This would be uniquely beneficial to BSR. BSR REIT As a result of this, BSR can keep growing its same property NOI even today as its markets are severely oversupplied. It has guided for ~2% growth in 2024 even as most other apartment REITs are expecting a slight drop in rents. This bodes very well for 2025 and beyond because new construction starts have now dropped to the lowest level since the great financial crisis due to the high interest rates and inflation. As the oversupply turns into undersupply, rent growth will accelerate, and I expect BSR to lead the pack again. But despite enjoying above-average long-term rent growth prospects, BSR is today priced at an exceptionally low valuation. It is among the cheapest in its property sector. It is even cheaper than Mid-America Apartment Communities (MAA) and Camden Property Trust (CPT):     BSR REIT   P/FFO 11x   P/NAV 0.6x   Dividend Yield 5%   Click to enlarge This is likely because of its small size and also because it is primarily listed in Canada. Canadian investors may not understand just how fast its rents are likely to grow over the long run. BSR's management owns 40%+ of the company, and they are today busy buying back as many shares as they can while they are heavily discounted relative to their net asset value. In the last quarter alone, they bought back another $30+ million worth of shares, which is significant for a company of this size. It is creating a lot of value and as interest rates return to lower levels, and rent growth accelerates in the coming years, I expect all of this hidden value to be unlocked and BSR to richly reward its shareholders. Just two years ago, it traded at a premium to its NAV, so I have little doubt that it can get there again as the market sentiment for REITs recovers. Closing Note Most REITs are only suitable for specific types of investors. But NET.UN and BSR are exceptions that could make sense for most investors, in my opinion. There are ~20 such cases in the REIT sector, and those are the types of REITs that we are targeting.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2431535810"}