They say that good things come to those who wait. And in many - perhaps even most - cases, they're right.
There are, of course, certain aspects of life that are most definitely meant to be enjoyed in the moment. For instance, we'd be in a significant amount of trouble if we waited too long to eat a proper meal.
Without the right amount of nutrition each day, we'd start to lose weight, and not in a good way. Our bones would shrink in density and our muscles would suffer in similar ways.
Oh yeah, and our vital organs would start shutting down too.
Starvation affects the brain and influences mood changes, rigidity in thinking, anxiety, and reduction in appetite. Starvation and weight loss may change the way the brain works in vulnerable individuals, which may… make it difficult to return to normal eating habits.
Clearly then, we need to eat on a regular basis.
Even so, don't take that assessment as an excuse to throw away your new year's diet-based resolutions. You set those goals for a reason, no doubt, and I certainly don't want to be your healthy lifestyle's downfall, particularly not before the first week of the first year in a new decade is complete.
Instead, keep in mind all the benefits you'll be experiencing if you wait - maybe even a while - to have that slice of pie.
That "staying power" can do wonders when we stick with it.
Delayed Gratification at Your Service
Dictionary.com defines "staying power" as a noun that means the "ability or strength to last or endure; endurance; stamina."
Then, right below that entry, is a list of related words:
- Grit
- Endurance
- Vitality
- Fortitude
- Resilience
- Backbone
- Guts
- Heart
- Legs
To that, I'd add "delayed gratification." As you no doubt know, that's the practice of accepting some pain in the moment - physical, psychological, emotional, or otherwise - in order to achieve a bigger pleasure in the future.
For example, let's say your diet does allow you to enjoy a sweet snack, only once a week. It's Tuesday when a colleague brings in a cake for someone's birthday, yet you know very well you're going to a party on Saturday hosted by the best pie maker you've ever known.
So what do you do?
More than likely, the smart (though hardly the easy) thing would be to wait. To delay your gratification until the weekend.
After all, you don't know how good the cake before you actually is. It's an unknown that might be lackluster under that attractive coating of frosting. And then there's the fact that Tuesday is going to be gone before you know it. Isn't it nicer in this case to have something to look forward to?
There are just as solid or more solid arguments out there in terms of saving for future plans instead of spending on frivolous items and upgrades. For that matter, the larger history of the markets is one that adheres to a delayed gratification philosophy.
You spend your time researching and studying up on how to put together a proper portfolio.
Then you wait for really good things to happen. And you wait. And you wait some more for weeks and years or decades.
But when you do, that waiting certainly pays off.
Since the Century Began
In the case of the markets, waiting pays off both figuratively and very, very literally - at least when it comes to well-placed, well-researched investments.
It can take a $10,000 portfolio and turn it into $50,000, $100,000, or even $500,000. It really depends on the power of time.
To prove this, just look at the U.S. market's rise over the last 20 years.
- The Dow went from 11,501.85 on Jan. 3, 2000 to 28,538.44 on Dec. 31, 2019.
- The Nasdaq went from 4186.19 to 8972.60.
- The S&P went from 1469.25 to 3230.78.
Those are significant differences! Moreover, those are significant differences during a 20-year period that involved one significant and one enormous crash: the dot.com debacle in 2000 and the housing market bubble bursting in 2007. Plus the recessions that followed.
I bring that up to cut certain arguments off at the pass about the following real estate investment trusts.
These REITs gained immensely over the last decade.
Yes, the past decade began on a stagnate note and ended with market highs never reached before. Probably never fathomed before, for that matter!
But the 10 stocks below would have risen significantly regardless due to the solid companies they stand for. And the investors who stuck with them for the last 10 years - putting their money into those positions instead of unnecessary and temporary extravagances - came out ahead.
Far, far, far ahead.
So if you want or need a case for delayed gratification, look no further than the following 10 REITs…
These Real Estate Plays Went Up, Up, and Away
Now we're going to provide the list of the top 10 REITs over the last decade, ranking them in order of lowest to highest, based upon total returns.
#10 (206.5%) CubeSmart (CUBE) is a self-storage REIT that owns or manages 1,156 self-storage properties across the U.S. and according to the 2019 Self Storage Almanac, "is one of the top three owners and operators of self-storage properties in the U.S". The company has been on and off of our busy list, and more recently we have a Hold on shares due to poor Q3-19 results: same-store net operating income growth was lower than expected.
The impact of new supply on operating fundamentals remains a concern for the sector and expense growth has put more pressure on results. At this point in the cycle, we have more confidence with Public Storage (PSA) and Extra Space, recognizing they have superior competitive advantages to drive shareholder returns.
Keep in mind that CUBE cuts its dividend in 2009 ($1.05 in 2007 to $.10 in 2009) so the shares took a harder hit, and thus were able to climb rapidly. Shares now trade at $31.63, slightly above our Fair Value target of $30.00. The dividend yield is 4.17% and analysts forecast FFO per growth in 2020 of 3%. While shares are getting closer to our Fair Value target, we prefer EXR and PSA at this stage in the cycle.
What to Do? Hold
Source: FAST Graphs
#9 (207.5%) American Tower (AMT) has returned 207.5% in the last decade or around 20.7% annually. It should be no surprise that this mega-growth REIT has generated such impressive results. Cell towers are a high barrier to entry models that typically have significant zoning. They are capital intensive and built for scale, and AMT was the first mover in the sector (now has 171,000+ communications sites).
The demand is evident as there are approximately $30 billion in annual CAPEX spending by U.S. service providers over the last few years. Also, there are significant economic incentives that exist for carriers to choose a colocation model over building their own site. AMT's superior growth platform is obvious: 16.8% CAGR revenue growth since 2008, 15.6% CAGR Adjusted EBITDA since 2008, 16% CAGR AFFO per share since 2008, and average annual dividend per share growth >20% since 2012.
As you can imagine, shares in AMT are priced for perfection and are priced at $228.61 (our Fair Value is $195.00) with a dividend yield of just 1.77%. Keep in mind, Crown Castle (CCI), the direct peer yields 3.4% with a higher payout ratio. The P/FFO multiple is 28.9x or around 700 basis points higher than the norm of 22x. We see no signs of a slowdown, as we are watching and waiting, with a better chance to pick up CCI (with a robust pullback).
What to Do? Wait for a Large Pullback.
Source: FAST Graphs
#8 (265.1%) Equinix (EQIX) is a data center REIT that has returned 265.1% over the last decade or around 26% annually. While income investors have been discouraged by the low dividend yield (just 1.68%), total return investors have been pleased by the strong share price appreciation.
To drive growth, EQIX maintains a strong balance sheet with conservative leverage: targeting 3-4x net debt to LQA adj. EBITDA. The company also maintains a prudent debt maturity profile with no significant debt maturing until 2022. In the latest quarter (Q3-19) AFFO was $473 million, an 18% increase year over year, and the company raised full-year guidance by 13% to 14% year over year. The company said it expects the 2019 dividend to be $825 million, an 8% increase year over year.
We pay close attention to the data center REITs (we have buys on Digital Realty and CyrusOne now), and currently, EQIX is a bit expensive. Shares are trading at $585.12 and our Fair Value target is $500.00. Analysts forecast growth of 9% in 2020 and 10% in 2021.
What to Do? Wait for a Large Pullback.
Source: FAST Graphs
#7 (225.5%): Equity Lifestyle (ELS) is the largest manufactured housing REIT with a portfolio of 413 properties containing 156,081 sites in 33 states and British Columbia. Around 66% of revenue is generated from manufactured housing (204 communities and 73,800 sites), followed by RV Resorts (198) and Marinas (11).
ELH has a 20-year track record of maintaining positive same store NOI growth and in the latest quarter saw core base rental income growth of 5.7% (manufactured housing). The company's core occupancy has grown 40 consecutive quarters through Q3-19 and is now 95.4%. Dividend growth has been impressive, CAGR is 25% since 2006.
Similar to direct peer, ELS, SUI is also priced for perfection. Shares now trade at $70.09 with a P/FFO of 33.4x (five-year norm is 23.4x) with a dividend yield of just 1.75%. Analyst forecast growth of 8% in 2020, but we can't get too excited now, given the massive premium offered by Mr. Market.
What to Do? Wait for a Large Pullback.
Source: FAST Graphs
#6 (273.6%): Ryman Hospitality (RHP) is a unique player in the Lodging sector and fortunately we have been able to capitalize on the success. Our first article was in November 2013 and we decided to begin to nibble on shares in October 2017. Feeling a bit more confident with this small cap, we took a larger bit in 2019 and that research has paid off handsomely: RHP returned 34% in 2019.
Our attraction this REIT is the focus on upscale meetings-focused resorts in which RHP owns 4 Gaylord-branded hotels (Nashville, Orlando, Dallas, and DC). Each of these Gaylord Hotels has at least 400,000 square feet of meeting, convention and exhibition space, food and beverage options, and retail and spa facilities within a single self-contained property.
The REIT also owns and operates a number of media and entertainment assets, including the Grand Ole Opry, the legendary weekly showcase of country music's finest performers for nearly 90 years; the Ryman Auditorium, the storied former home of the Grand Ole Opry located in downtown Nashville; WSM-AM, the Opry's radio home; and Hee Haw.
Shares are now trading at $85.54 (our Fair Value Target is $83.00) with a dividend yield of 4.2%. RHP is one of the few Lodging REITs that are forecasted to grow FFO in 2020 (RHP is forecasted to grow FFO per share by 8% in 2020) and while we are encouraged by the potential, we believe shares are a bit rich at this time.
What to Do? Wait for a Modest Pullback.
Source: FAST Graphs
#5 (266.8%): First Industrial Realty Trust (FR) in an industrial REIT that owns 783 properties (1,993 tenants) with an average building size of 89,000 square feet. The company has a diversified base of high-quality tenants such as Lowe's (LOW), Amazon (AMZN), Karma Automotive, and Harbor Freight. Around 75% of the portfolio are bulk warehouses, and rest are regional warehouses (12%), light industrial (11%), and R&D (2%).
FR has done a great job of growing its dividend (CAGR is 18% since 2013) and it's likely that the growth will continue since the company has one of the lowest payout ratios (64%) in the sector. To drive growth the company has three large developments underway, totaling 873,000 square feet, that should generate cash yields of around 6.7%. The company also has strategic land positions in major markets across the U.S. that total 1,035 acres of possible square footage of over 16 million square feet.
Keep in mind that around 10 years ago FR cut its dividend massively, from $2.41 (in 2008) to zero. The company did not begin raising the dividend until 2013. Nonetheless, the price performance has been solid, and shares are now priced for perfection, trading at $41.64 and a P/FFO multiple of 23.9x (five-year norm is 18.4x). The dividend yield is 2.21% and analysts forecast 2020 FFO per share growth of 5%.
What to Do? Wait for a Large Pullback.
Source: FAST Graphs
#4 (280.9%): Blackstone Mortgage (BXMT) has returned 280.9% in a decade or 28% annually. To be clear, BXMT's predecessor entity was referred to as Capital Trust and the names were changed in December 2012 as the company was acquired by Blackstone Group (BX) to focus on originating first-lien mortgages unlike many peers that focus more narrowly on mezzanine lending. We have been covering BXMT since February 2014.
While we aren't big fans of external management, we consider BXMT an outlier since it sources deals from the "big brother" Blackstone. So, when you invest in BXMT you are investing in the debt of some of the highest quality properties in the world. As of the latest quarter (Q3-19), BXMT held $16.4 billion of loans that were 100% performing with a weighted average loan to value of 62%.
Shares are now trading at $37.26, around 3.5% above our Fair Value Target of $36.00. The dividend yield is 6.7% and we would like to see some (dividend) growth in 2020 (BXMT has not grown the dividend since 2016). Overall, we view BXMT's platform to be one of the best in the commercial mREIT space.
What to Do? Wait for a Pullback.
Source: FAST Graphs
#3 (305.9%): Sun Communities (SUI) generated decade-long returns of 305.6% (116% annually). We wish we would have jumped on the "silver tsunami" sooner as shares have become too rich (but we're always watching for a pullback). SUI is the second-largest player in the manufactured housing/recreational vehicle sector with a portfolio of 420 communities consisting of over 140,000 sites across 32 states and Ontario, Canada. Manufactured housing is the largest sub-sector (71%) followed by RV (39%).
SUI has strong internal growth engines, such as 2% to 4% annual rent increases, occupancy (manufactured homes is 95.7%), expansions (~7,300 sites available for expansion after 2019), and RV conversions (~1,100 average yearly converted site). Also, external growth is steady with $788 million in acquisitions YTD (through Nov 2019) and development that yields 7% to 8% (800 - 1,000 2019E ground-up site deliveries).
The sun shines bright on the particular REIT, and as noted, shares have been too hot to handle. Shares now trade at $149.52 with a P/FFO multiple of 30.6x (five-year norm is 20.3x) and a dividend yield of 2.0. For the lucky ones (who own shares now), analysts forecast growth of 8% in 2020 and 7% in 2021. Oh well; we'll just be waiting on a rather substantial pullback if it ever comes.
What to Do? Wait for a Pullback.
Source: FAST Graphs
#2 (307.7%): Extra Space (EXR) has generate returned 307.7% in 10 years or a whopping 116.7% annually. We have been covering the company for quite some time, our initial article was in 2011 and more recently we upgraded shares from a Hold to a Buy. We consider to be one of the best run self storage REITs as evidenced by the company's best-in-class fundamentals, which include occupancy, earnings growth, and dividend growth.
In the latest investor deck the company highlights "20 Quarters of Average Same-Store Outperformance" that includes revenue (+6.0%) and NOI (7.5%). The company has significantly outperformed its peers generating five-year total dividend increase of 91.5%. With over 1,800 properties (920 owned, 247 JVs, and 630 managed), EXR has string scale advantage.
Given the more recent pullback (primarily supply related) we recently upgraded shares to a Buy. The current price is $106.52 (our Fair Value is $105.00) and dividend yield is 3.4%. Analysts forecast FFO per share growth in 2020 of 4%.
What to Do? Buy.
Source: FAST Graphs
#1 (406.9%): Arbor Real Estate Trust (ABR) returned 406.9% in the last decade and is a commercial mortgage REIT that we first began to cover in July 2018 and initiated a Buy recommendation in early 2019. We remain attracted to this particular name based on the niche lending model that includes a focus on multifamily, senior loans, which generate strong leveraged returns. The company has been operating since 1995 (with loans of around $30 billion) and originates and services multifamily loans nationwide and has originators in nine states.
Another thing we like about Arbor is that the company has consistently increased earnings that have resulted in consistent dividend increases. In the latest quarter (Q3-19) the company increased its quarterly dividend to $0.30 a share, which represents the third increase in 2019. The company's significant growth continues to increase the run rate of core earnings, making the probability of future increases highly likely.
Shares are now trading at $14.19 and we have a Fair Value Target of $14.19 (+3% above our target). Although shares exploded in 2019 (+53.4%) we believe there's opportunity to jump back in when the price pulls back below our FV target. The dividend yield id 8.46% and analysts forecast 4% core earnings growth in 2020.
What to Do? Wait for a Pullback.
Source: FAST Graphs
In Summary…
We included a chart below to recap the top 10 REITs of the last decade, and as you can see, Extra Space is the only company on our Buy list; however, we have a few we're monitoring that are on our "watch list" including Arbor Realty, Blackstone Mortgage, and Ryman Hospitality. I wonder which company will be on the Top 10 REIT list in the next decade. Will it perhaps be Tanger Outlets (SKT) or Simon Property (SPG)?
Source: iREIT
Author's note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: written and distributed only to assist in research while providing a forum for second-level thinking.
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