Rose’s Income Garden Portfolio: 9 Sweet REIT Stocks; 3 winners

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RIG = Rose’s Income Garden

Rose’s Income Garden (“RIG”) is a defensive income-quality value-built portfolio that includes all 11 sectors with 9 real estate equity REITs to be revealed in this article. The complete RIG listings are found at the service “MTF”/Macro Trading Factory, led by The Macro Teller and myself Rose/ RoseNose. The service offers two portfolios: “Funds Macro Portfolio,” “FMP” and “Rose’s Income Garden;” both aim to outperform the SPY on a risk-adjusted basis, in a relaxed manner. RIG contains primarily investment-grade common stock but also has high yield (“HY”) real estate investments/REITs and business development companies/BDCs. RIG’s goal is to maintain 50% of the income from defensive sectors/stocks and to keep an income yield of 4% or more.

August has been a good month for the S&P and for RIG. RIG portfolio value at mid month is up 5% ytd, while SPY is down 9.1% which gives RIG a 14.1% advantage. These statistics and more are always available 24/7 at MTF service and where we can chat often or you can ask us anything about your investing.

REIT = Real Estate Investment Trust

There are 2 sectors that harbor REITs:

-Financial

Mortgage REITs are found here and may be commercial, residential or hybrid. They do not own property, but provide loans to companies to own land, property or other types of hard assets. This sector may also contain other types of financials such as insurance companies and BDCs.

– Real estate

Equity REITs own the basic underlying equity or property and rent it to others using leases of varying lengths and are alone in this sector. There are over 12 or more subdivisions, so it has a very broad inviting range of possible investment types to choose from. Some types are as follows: office, industrial, retail, lodging and resorts, residential, timber/ land, healthcare, self storage, infrastructure, data centers, diversified/ and specialty.

RIG Real Estate “RE” Sector Review

The 9 companies in RIG are listed below by RE type:

Healthcare: 3: Omega (OHI), Medical Properties Trust (MPW) and Sabra (SBRA)

Retail: 2: Simon Property Group (SPG) and Macerich (MAC)

Triple net: 3: WP Carey (WPC), National Retail Property (NNN) and STORE (STOR)

Infrastructure: DigitalBridge (DBRG)

The next chart shows the real more important quality information along with dividends and yields. It shows S&P Credit Rating/S&P Cr R, and Price for August 14th, 2022 and the corresponding dividend yield for the shown yearly dividend. The 3 healthcare tickers are shown in bold and listed first.

real-estate

Stock

Company

S&P

Current

yearly

Div

Ticker

Name

CrR

Price$

Div$

Yield %

IHO

Omega Healthcare

BBB-

$33.56

2.68

7.99%

MPW

Medical Prop Trust

BB+

$16.72

1.16

6.94%

SBRA

Sabra Healthcare

BBB-

$16.55

1.2

7.25%

WPC

WP Carey

BBB

87.88

4.24

4.82%

GSP

Simon Prop Group

HAS-

115.85

6.85

5.91%

NNN

National Retail Prop

BBB+

48.12

2.14

4.45%

STOR

Store Capital Co

BBB

29.22

1.54

5.27%

DBRG

Digital Bridge

$5.70

0

0.00%

Mac

macerich

11.5

0.6

5.22%

Most REITs in general offer nice higher dividend yields and it would be very easy and tempting to own many different types. The 3 healthcare currently provide 5% income which is added to the portfolio defensive income goal. The other 6 do not count towards that goal and represent 4.6% income. REITs are not taxed on earnings and have a pass through distribution status because they must pay out at least 90% of their taxable income to shareholders. Many pay out more and in some cases 100%. In turn, shareholders pay the income taxes on those dividends and earnings are not used in evaluations. The different metrics that are used are discussed next.

FFO/AFFO

FFO = Funds From Operations

AFFO = Adjusted FFO

Both of these metrics may often be employed depending on the REIT. For my purposes I will be only using FFO as it is the most common metric found. It is used in place of earnings as is done for common stock, where P/E is used. The following abbreviations used are as follows:

P/FFO Current = Price/FFO from Fast Graphs; Chuck Carnevale subscriber service.

5 years P/FFO = Past 5 year average P/FFO

M*FV $ = Analyst Morningstar suggests Fair Value in US dollars

Yahoo End $ = Yahoo Finance analyst suggested price target out 12 months

All data was obtained over the weekend of August 14th while the market was closed.

Stock

Current

M* VF

yahoo

P/FFO

5 years

Ticker

Price

$

End $

Current

P/FFO

IHO

$33.56

$35.06

$32.21

10.8

10.6

MPW

$16.72

$21.22

$19.62

9.3

15.5

SBRA

$16.55

$18.91

$16.55

10.7

9.5

WPC

$87.88

$85.84

$91.00

17.35

15.3

GSP

$115.85

160

126.4

9.8

12.7

NNN

$48.12

47.69

48.92

15.95

15.6

STOR

$29.22

$32.60

$31.05

13.6

16.3

DBRG

$5.70

$7.87

$9.14

0

0

Mac

$11.50

$28.50

$11.86

5.8

0

3 Winners / Undervalued

Undervalued = MPW, SPG and STOR.

1- Medical Properties Trust

MPW has been headquartered in Birmingham AL since 2003. It is the largest owner of hospitals internationally in 9 countries and on 4 continents. In addition it offers proforma operations and recapitalization loans to many of its operators. The dividend has been rising since 2013 or 9 years. FFO growth has been on the rise for the last 3 years and projected to rise by ~4%. It has a low S&P credit rating of BB+ and thus, waiting for a minimum 6% yield, I got my first shares only last year. I am holding at my current level of ownership for now, but believe it continues to remain a value with 7% yield.

2- Simon Property Group

SPG is a quality premier retail REIT headquartered in Indianapolis, IN. Its tenants offer extraordinary dining, retail shopping and entertainment operations worldwide across America, Europe and Asia. Retail operations suffered with covid and it stopped its past rising dividend streak, but it has already raised the dividend numerous times since then. It has not reached the old dividend level, but the price remains attractive with a nice yield.

3- STORE Capital

STOR is a fast growing triple net lease REIT headquartered in Scottsdale, AZ. The dividend has risen for the last 7 years. It has over 2500 properties across the US of which many are profit centers as well. I see this one as having FFO rising quite nicely now, into 2023 and at about 5% beyond that. Yield and the growth make it attractive to own.

Fair Value

-Omega Healthcare Investors

OHI owns primarily skilled nursing and assisted living facilities primarily in the US with some in the UK. It is headquartered in Hunt Valley, MD. It rents to a diverse group of healthcare operators primarily using triple net lease requirements. Omega has quality debt reserves and shows it should be able to continue the current dividend, however without raises for the next year or so. Its price has more recently recovered as well and it should offer good income, but with little dividend growth. FFO growth is mostly flat and true FFO recovery should start in 2023 or beyond.

-National Retail Properties

NNN is a triple net REIT with mostly high quality properties across the 48 states of mainland USA. It has raised the dividend for 32 years and is headquartered in Orlando FL. It provides long term leases with high occupancy tenants including convenience stores, full service restaurants, auto stores, some fast food, family entertainment, auto parts, health and fitness, theaters, RV parts, equipment rental, home improvement, and wholesale stores with many recognizable company names. It looks to have ~4% rising FFO growth.

-Macerich

Too hard to know, but just saying…. MAC is probably fair value.

MAC is headquartered in Santa Monica, CA. It owns, renovates and redevelops regional malls across the US in attractive densely populated locations. It was once considered to have mainly premiere locations and is slowly recovering from the covid apocalypse for many retail operations. It cut and froze its dividend in 2021 and has held that as it tries to have a very slow recovery with FFO flat. I have a very small position and was hoping it would become a favorite for speculation once again, which is not looking good. It does provide a dividend to make it somewhat hold-able, so I do, but one of these days, I might just take the cash and release it. Anyone with good news about it, please let me know.

-DigitalBridge Group

DBRG is an investment infrastructure firm founded in 2009 in Boca Raton, Fl, but has offices around the world. It specializes in cell towers, data centers, fiber and some other infrastructure types of real estate. It changed its name from Colony in June 2021 to DigitalBridge to ensure its focus on the digital aspects of its founding. It will do a reverse 1:4 share split on August 23rd.

There is some mention of a dividend being started by the end of this year or perhaps 2023.

Overvalued?

WPC and SBRA are relatively over valued using P/FFO, but okay by analyst suggested prices. I keep them and enjoy collecting the dividends.

-Sabra Healthcare

SBRA is headquartered in Irving, Ca.; currently owning ~416 properties with 279 in skilled nursing care, 109 senior housing with the remaining in behavioral and special health facilities in the US and Canada. It also has some joint ventures and mortgage loans. It also has suffered from the covid shut downs and is recovering quite nicely. This is one case where a dividend cut was needed and it did so in 2020 and even a bit more in 2021 to $1.20. I sold this back in 2020 and only got back into it last year. Its price has been up and down, but it is rising nicely now. The dividend should also begin to rise soon with FFO being stable and rising into 2023/4.

-WP Carey

WPC is one of the largest triple net lease REITs operating in the US and Europe for over 50 years while being headquartered in NY, NY. It leases to single tenant operators for industrial, warehouse, office, retail, self storage properties using long term leases. It’s a quality and rising dividend payer for over 25 years. It shows FFO growth of about 3.5% into 2023/4. It has always had a quality credit rating and a nice dividend yield.

Summary/Conclusion

The real estate sector stocks or equity REITs are great income providers. As mentioned there are many diversified types with varying yields with high or low dividend growth. Scrutiny should be used for the actual ownership purpose, however, setting and keeping that goal to help make owning them very worthwhile for successful income generation, and providing “Happy Investing” to all.