3 Small Cap REITs Poised To Profit

seekingalpha06-14

Small-cap REITs can be profitable investments, with the potential for acquisition or growth to become industry giants.Three small-cap REITs to consider are Alpine Income Property Trust, Plymouth ...

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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\">\n3 Small Cap REITs Poised To Profit\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-14 23:30 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4699304-3-small-cap-reits-poised-to-profit><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Small-cap REITs can be profitable investments, with the potential for acquisition or growth to become industry giants.Three small-cap REITs to consider are Alpine Income Property Trust, Plymouth ...</p>\n\n<a href=\"https://seekingalpha.com/article/4699304-3-small-cap-reits-poised-to-profit\">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":"PINE","symbol_name":"Alpine Income Property Trust, Inc.","start_time":0,"source_url":"https://seekingalpha.com/article/4699304-3-small-cap-reits-poised-to-profit","article_id":"2443727356","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1281100549/image_1281100549.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2443727356","pubTimestamp":1718379031,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Small-cap REITs can be profitable investments, with the potential for acquisition or growth to become industry giants.Threesmall-cap REITs to consider are Alpine Income Property Trust, Plymouth Indust","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"PINE":"Alpine Income Property Trust, Inc.","BK4160":"多样化房地产投资信托v","BK4585":"ETF&股票定投概念","CTO":"CTO Realty Growth, Inc.","BK4534":"瑞士信贷持仓","BK4567":"ESG概念","BK4128":"药品零售","TRNO":"Terreno Realty","O":"Realty Income Corp","BK6000":"餐馆","WBA":"沃尔格林联合博姿","BK6509":"食品和饮料股","BK4080":"零售业房地产投资信托","STAG":"STAG Industrial","LU0321505868.SGD":"Schroder ISF Global Dividend Maximiser A Dis SGD","LU0321505439.SGD":"Schroder ISF Global Dividend Maximiser A Acc SGD","BK4588":"碎股","CFA":"VictoryShares US 500 Volatility Wtd ETF","BK4231":"零售房地产信托","PLYM":"Plymouth Industrial Reit Inc.","PLD":"安博","533.SI":"ABR","CFA.SI":"NikkoAM-STC Asia REIT","WSR":"Whitestone REIT","BK4171":"工业房地产投资信托","REXR":"Rexford Industrial Realty Inc","BK4224":"工业房地产信托","ILPT":"Industrial Logistics Properties Trust"},"translate_title":"3只小型房地产投资信托基金有望盈利","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CFA.SI":1,"WSR":1,"WBA":1,"TRNO":1,"STAG":1,"REXR":1,"PLYM":1,"PLD":1,"PINE":1,"O":1,"ILPT":1,"CTO":1,"CFA":1,"533.SI":0.9},"content_text":"Small-cap REITs can be profitable investments, with the potential for acquisition or growth to become industry giants.Three small-cap REITs to consider are Alpine Income Property Trust, Plymouth Industrial, and Whitestone REIT.Each REIT has unique strengths and opportunities for growth, making them speculative buys with potential for long-term returns.   AaronAmat Some of my best buys in the real estate investment trust, or REIT, sector have been small cap REITs. Take for example STAG Industrial, Inc. (STAG), an industrial REIT that I recommended back in 2011 and shares have returned over 350% (13% annually). There are a number of companies in the REIT sector that I recommended over the years that have been acquired, such as:  QTS Realty (formerly QTS). American Campus (formerly ACC). RPT Realty (formerly RPT). CyrusOne (formerly CONE).  Given the fragmentation within the REIT sector (only 10% of all institutional quality US commercial real estate is owned by REITs), we believe that there will be continued consolidation. Thus, we enjoy researching and investing in small cap REITs because they could be acquired at large premiums or grow to become giants like Realty Income Corporation (O) or Prologis, Inc. (PLD). Regardless, small cap REITs create a buoy effect because they are more susceptible to wider mood swings in price due to lower trading volumes. Let's take a look at three small cap REITs that are poised to profit: Alpine Income Property Trust, Inc. (PINE) PINE was formed in late 2019 as part of the strategic transformation implemented by CTO Realty Growth, Inc. (CTO). CTO was a landowner in Florida, formerly known as Consolidated-Tomoka Land Co, who for years had been selling raw timberland to acquire income-producing assets, mainly shopping centers and stand-alone retail properties. In late 2019, as part of the CTO’s strategic transformation, the company sponsored the formation and public offering of Alpine Income Property Trust, Inc. (PINE), which was to become a pure-play net lease REIT. As part of the deal, PINE acquired 20 single-tenant properties from CTO Realty and agreed to be externally managed by CTO. With the closing of PINE’s public listing, CTO invested $15.5 million for 815,790 shares of PINE’s common stock. As of the most recent information I could find, the CTO now has approximately $36 million invested in PINE, which represents a ~16% interest in the company. I wanted to give a brief history of the company to show the strong alignment between PINE and its external manager. I normally stay away from externally managed REITs, but in this case, the management terms are reasonable, including the exit provision, plus the eternal manager has a lot of skin in the game. Moreover, with a market cap of approximately $216.8 million, PINE is just too small to efficiently manage 138 properties spread across 35 states. Until PINE reaches critical mass for internalization, it seems beneficial to have an external management team with in-house abilities that can limit redundancies and improve operations.   PINE IR As shown above, PINE has dramatically grown its portfolio since its formation in 2019. In addition to the rapid portfolio growth, the company has improved the quality of its portfolio. In terms of growth, since 2019 the portfolio property count grew from 20 to 138 and the total square footage increased from 0.9 million to 3.8 million. With the additional assets, PINE increased its annualized base rent (“ABR”) from $13.3 million to $38.9 million. While the growth is impressive, what’s more impressive is the improved quality of its portfolio. As a percentage of ABR, the company reduced its top tenant exposure from 21% to 12%, its top sector exposure from 21% to 14%, and its top state exposure from 26% to 12%. Possibly, the best improvement is that the percentage of PINE’s annual rent from investment-grade tenants increased from 36% to 65%. The improved quality of its portfolio will take time to materialize into increased returns. However, the improvements made put the portfolio in a strong position for future growth. At the end of 1Q-24, PINE reported a 99.0% portfolio occupancy and an average lease duration of 6.9 years.   PINE IR PINE has some of the highest quality tenants in the net lease space, which includes names such as Lowe’s, Dick’s Sporting Goods, Walgreens, Walmart, and Home Depot. The company’s largest tenant is Walgreens Boots Alliance, Inc. (WBA), which makes up 12% of its portfolio ABR, followed by Lowe’s and Dick’s which make up 9% each. The company has a high amount of tenant concentration, with its top 10 tenants generating roughly 63% of its portfolio ABR. However, it has long lease terms with a WALT of 6.9 years, plus 8 out of its top 10 tenants have an investment-grade credit rating.   PINE IR Alpine has a reasonable amount of debt with a long-term debt-to-capital ratio of 52.86%, a net debt to pro forma EBITDA of 7.4x, and an EBITDA to interest expense ratio of 3.13x. I’d like to see PINE reduce its leverage to under 7x, but overall its balance sheet is in good shape. One of the best features of its financial position is that there are no debt maturities until 2026 and the company has access to over $185.0 million of liquidity. This should help PINE control its cost of capital, as it will not need to re-price its debt for several years.   PINE IR Alpine’s FFO per share fell by -15.0% in 2023, from $1.73 to $1.47 per share. This is a good example of how portfolio quality improvements can take time to get to the bottom line. PINE has actively been executing an asset recycling strategy in order to deleverage its balance sheet and improve the overall quality of its portfolio. Essentially, the company has been disposing of properties leased to non-investment grade-rated tenants and redeploying the capital into investment-grade tenant properties. During the first quarter of 2023, PINE sold 10 properties that included properties leased to Rooms To Go, LA Fitness, Ethan Allen, and several restaurant concepts. The disposition was focused on non-investment grade rated tenants. During the 1Q-23 conference call, John Albright, the CEO of PINE, stated that: “While we've guided our FFO and AFFO 2023 to below 2022, largely due to deleveraging and timing of our asset recycling, the stabilized effects of our positive net investment spreads that will fully materialize in 2024 will allow us to drive organic FFO and AFFO growth with better risk-adjusted tenancy and without the need for additional capital in what is currently a capital-constrained environment.” This is a great example of how PINE is willing to forgo some FFO growth in the short term to position its portfolio for long-term growth and durability. Analysts expect FFO per share to increase by 6.2% in 2024, and then increase by almost 3% in 2025, to $1.60 per share.   TIKR.com Currently, PINE is trading at a P/AFFO of 10.02x, which is far below the net lease sector average. This translates to a 9.98% AFFO yield and a 7.16% dividend yield, providing plenty of coverage for the dividend. The company deserves a reduced multiple due to its size and external management. However, there is high alignment between PINE and its external manager and with the size of the company, it looks like a net positive for PINE to be externally managed at this point. All else equal, there is always increased risk with smaller companies that don’t have the same scale and resources compared to larger competitors. However, I think the risk is mitigated by PINE’s debt schedule with no maturities until 2026, as well as its roster of investment-grade tenants with long-term leases in place. There is a lot to like about PINE, but given its size, we assign it Spec Buy.   FAST Graphs Plymouth Industrial REIT, Inc. (PLYM) Plymouth is an industrial REIT that specializes in the acquisition, development, and management of single and multi-tenant industrial properties. PLYM has a market cap of approximately $953.9 million and a 34.0 million SF portfolio made up of 156 industrial properties containing 211 buildings across 12 states. PLYM specializes in industrial properties, but structures most of its leases on a triple-net basis. At the end of the first quarter, the company reported 80.5% of its ABR was derived from triple net leases. The company receives 54.3% of its ABR from multi-tenant properties and 45.7% from single-tenant properties. Its leases contain rent escalators that average roughly 3.0% annually, giving the company reasonable internal growth, however, most internal growth will be achieved through releasing spreads as rents roll to market rates. At the end of the first quarter, the company reported a portfolio occupancy of 96.9%, a same-store occupancy of 98.3%, and a weighted average lease term of 3.2 years.   PLYM IR PLYM invests in multiple types of industrial properties including warehouses, distribution centers, small bay industrial, and light industrial properties that are primarily located in secondary markets. Rather than targeting primary markets like Rexford Industrial Realty, Inc. (REXR) or Terreno Realty Corporation (TRNO), Plymouth is more focused on midwestern and southern markets. More specifically, PLYM’s portfolio is concentrated in what they refer to as the Golden Triangle (“GT”). The GT region primarily encompasses the Midwest, the Southeast, and parts of the Mid-Atlantic region. The GT region is very attractive for industrial properties for several reasons. More than half of domestic GDP comes from the Golden Triangle. The region contains more ports than any other in the region, and 90% of U.S. households live within a 5-hour drive.   PLYM IR Additionally, there are several catalysts that should spur demand in the region. As a result of the pandemic, shutdowns, and the issues at the ports on the West Coast, including port congestion and labor disputes, many companies have been looking to diversify their points of entry for imported goods. So far, the major beneficiary of this movement has been secondary or emerging port markets. Over the last several years, there has been a surge in Eastern port volume, which should benefit many of the markets located within the Golden Triangle. Several states within the GT have seen a material increase in manufacturing construction, including Michigan, Ohio, Tennessee, and Georgia. There has also been significant private and public investment within the Golden Triangle. Over 80% of EV and Battery production plants are located in states within the Golden Triangle.   PLYM IR With a long-term debt-to-capital ratio of 64.55%, the company’s capital structure employs more debt than many of its industrial peers. However, the company has been deleveraging its balance sheet and has reduced its leverage for 7 quarters in a row. At the end of 1Q-24, the company reported a net debt to Adj EBITDA of 6.7x. Most of the company’s debt is fixed rate, and its annual EBITDA can cover its interest expense by 3.17x. PLYM has minimal debt maturities in 2024 and at the end of the first quarter, it reported $194.6 million of capacity under its unsecured line of credit.   PLYM IR Over the past several years, PLYM has struggled to grow its FFO per share. In 2020, the company generated $1.84 in FFO per share, which fell 7.1% the following year to $1.71 per share. In 2022, the company grew its FFO/share by +7.0% and then by +0.5% in 2023, to $1.84 per share. Essentially, FFO/share was flat from 2020 to 2023. However, investing is forward-looking, and PLYM appears to be well-positioned for growth over the next several years. The recent movement towards onshoring and reshoring is expected to increase the manufacturing base in the U.S. by 6% to 13% over the next decade. To date, new investments have been concentrated in the Midwest and Southeast and most new construction is expected to be in secondary markets.   PLYM IR This should benefit PLYM as its properties are primarily located in the Midwest and in secondary markets. The company should see increased demand for its distribution centers and warehouses due to the uptick in demand related to the spending on new construction. Analysts expect FFO per share to increase by 3.4% in 2024, by 8.0% in 2025, and by 5.6% in 2026.   TIKR.com Given the expected forward growth, a P/FFO of 11.15x is far too low for an industrial REIT. Below, you can see how it compares to its industrial peers. The only industrial REIT trading at a lower valuation is Industrial Logistics Properties Trust (ILPT) which is externally managed by The RMR Group. Anyone who has followed me for a while knows how I feel about RMR’s management practices. Suffice it to say, value can be destroyed at any multiple.   Seeking Alpha (compiled by iREIT®) I think there is a real opportunity with Plymouth as it is positioned for growth but trading at a P/FFO of 11.15x, or a blended AFFO multiple of 11.95x. The market has assigned a lower multiple to PLYM because its properties are not concentrated in high-barrier, gateway markets, but industrial demand appears to be shifting toward secondary markets with major manufacturing hubs as onshoring continues to pick up. Currently, the stock pays a 4.53% dividend yield that is well covered with a 2023 AFFO payout ratio of 52.02%. We rate Plymouth Industrial a Spec Buy.   FAST Graphs Whitestone REIT (WSR) WSR is a shopping center REIT that is engaged in the ownership and operation of commercial properties located in fast-growing Sunbelt markets. The company has a market cap of approximately $664.96 million and a 5.0 million SF portfolio made up of 55 high-quality, open-air shopping centers that are located in Arizona and Texas. Whitestone looks to acquire properties in high-growth markets that are densely populated. Currently, the company’s properties are primarily located around Austin, Houston, Dallas-Fort Worth, San Antonio, and Phoenix. At the end of 2023, the company owned: 12 properties in Houston 9 properties in Dallas-Fort Worth 3 properties in San Antonio 5 properties in Austin, and 26 properties in the metropolitan areas of Scottsdale and Phoenix WSR looks for retailers that are service-orientated. Some of the industries it targets include grocers, restaurants, self-care, financial services, medical services, specialty retail, and educational services. At the end of the first quarter, the company’s tenant base totaled 1,431 tenants and its largest tenant only made up 2.1% of its ABR. During 1Q-24, the company delivered strong results with GAAP leasing spreads of 15% on renewed leases and 26% on new leases. Year-over-year, the company increased its portfolio ABR by 7% and ended the quarter with a 93.6% occupancy rate.   WSR IR There has been quite a bit of news surrounding WSR over the past few months. Erez Asset Management (\"Erez\"), a large shareholder of WSR, attempted to get 2 directors added to WSR’s Board of Trustees in a proxy battle that Erez ultimately lost. In Erez’s letter to WSR, he cited multiple issues, including poor capital allocation, excess G&A, and corporate governance issues. Shareholders rejected his attempt to replace the two Board members in a proxy vote held in May. Less than a month later, WSR rejected a takeover bid from MCB Real Estate to buy the company for $14.00 per share, which represented a roughly 5% upside compared to the market price at that time. In the letter to Whitestone, MCB Real Estate cited WSR’s high-quality portfolio in attractive markets and offered to acquire all the outstanding shares for $14.00/share. About a week later, WSR sent a letter to MCB Real Estate rejecting its offer. It stated that the offer price was not a fair valuation of the company and that WSR’s management had a clear vision to create long-term shareholder value. One takeaway is that WSR has top-tier properties in strong markets, and its portfolio has attracted the attention of both activists and private institutional investors.   WSR IR The company has a little more debt than I’d like to see, with a debt to pro forma EBITDAre of 7.8x. While this metric is a bit on the high side, the company has minimal debt maturities in 2024, and from the illustration below, it looks like the company has significantly deleveraged since the first quarter of 2021.   WSR IR Over the recent past, WSR has not been able to deliver consistent FFO growth. From 2017 to 2023 the company had FFO growth rates of: 2017: FFO fell -6.7%. 2018: FFO fell -7.2%. 2019: FFO fell -8.6%. 2020: FFO fell -12.3%. 2021: FFO increased +6.5%. 2022: FFO increased +4.0%. 2023: FFO fell -11.7%. I can imagine shareholders were feeling some pain over this time period, especially when the dividend was cut by -47.37% in 2020 and then by -28.75% the following year. But again, we need to look forward to making good investments and WSR looks to be set up for growth over the next handful of years. Analysts expect FFO per share growth of 11.9% in 2024, 7.2% in 2025, and 15.4% in 2026.   TIKR.com Currently, WSR pays a 3.78% dividend yield that is well covered with a 2023 AFFO payout ratio of 69.57% and trades at a P/AFFO of 17.85x. The stock is trading above its historical average multiple of 14.27x, but given the expectations for double-digit earnings growth, a higher multiple might be warranted. We rate Whitestone REIT a Spec Buy.   FAST Graphs In Closing We like the odds we see with these small cap REITs. They could be acquired. Or they could become REIT superstars. Either way, we like the risk-return thesis, which is why I'm recommending them as \"speculative\" buys.  As always, thank you for the opportunity to be of service.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"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":"4.24.2","shortVersion":"4.24.2","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/2443727356"}