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Income, Investing  | January 17, 2019

This research report was produced by The REIT Forum with assistance fromBig Dog Investments.

We have five companies to cover today. Their dividend yields range from 3.3% to 7.27%.

Let’s begin looking at some great dividend stocks from The REIT Forum!


AvalonBay (AVB) trades about 1% over our target buy range recently. We had unloaded shares just prior to the dip to free up some cash. It was disclosed in an article to subscribers on 10/17/2018. Shares were trading at $186.75, compared to $178.18 today. The difference in price makes AVB more appealing. This is still one of the top six choices for housing REITs today.

Their latest guidance continues to look favorable:

That Core FFO growth of 4.4% year over year falls around the middle of our range for long-term dividend growth of 3% to 7%. When it comes to developing new apartments, AVB is easily one of the best developers in the world. Their developments have generated an average yield of 6.4%, but would trade at cap rates around 4.5%. When AVB retains cash flow, they use it to build new apartment buildings.

AvalonBay is an excellent apartment REIT with a dividend yield that should continue to grow. They own and operate upscale apartments in coastal markets.

AVB has performed extremely well on the fundamentals:

The FFO growth per share has been very attractive. I looked over a prior reconciliation for core FFO and I am satisfied with their accounting.

Their dividend growth has also been attractive:

When a REIT has reasonable same-store NOI growth, an excellent pipeline for new developments, and solid growth in core FFO per share, it should be matched with growth in dividends per share.


Macerich (MAC) is on sale. They will need to spend quite a bit of cash on replacing some weaker tenants, but you won't find MAC trading at less than 11x FFO often.

Macerich is a mall REIT with extremely high-quality properties and is also the 2nd largest of the traditional mall REITS.

MAC holds a fairly conservative balance sheet, but it isn’t as conservative as Simon Property Group (SPG). That creates a bit of a challenge when it comes to valuation.

The debt to total market capitalization is higher, but it certainly isn’t too bad. Perhaps the more important thing is that the debt to property value across the portfolio is materially better than debt to total market capitalization. While the share price is low, the value of the properties remains high.

I’m valuing the mall REITs using capitalization rates across their entire portfolio. The joint ventures are included but scaled to the REIT’s ownership interest. If MAC owns 60% of the property, they get 60% of the NOI included.

The growth rate in same center sales per square foot and same center NOI was very solid.

A 4.7% growth rate is indicative of a mall RIET emphasizing stronger properties with more growth rather lower-quality malls that provide higher yields today but less growth.

Sales per square foot are excellent:

MAC continues to increase rent per square foot, which is another positive sign. Lower occupancy hurts, but the solid rental rates reflect demand still being present. I wouldn’t be surprised if rental growth rates are weaker over the next year or two to maintain high occupancy.

Retail Opportunity Investments Corp.

Retail Opportunity Investment Corp. (ROIC) is well within our hold range. The company also comes with a risk rating of 3.5 which is only for the more aggressive buy-and-hold-investors. One of the main reasons for the high-risk rating is that management is comfortable running their leverage painfully high. It is important to point out that the high debt level is also pushing down their FFO multiple. Since the interest rate on the debts isn’t too high, each extra bit of debt leverage is raising FFO per share.

ROIC is an excellent strip-center REIT. However, the market already appreciates them. As it stands, the company trades at a substantial premium to peers. The premium valuation could be influenced by investors expecting higher growth rates in same store NOI, or by the company’s stable dividend growth. In my opinion, the bar for success has been set too high and ROIC is carrying more leverage than I would like to see for a REIT valued so highly.

ROIC’s portfolio is located on the west coast:

The west coast location leads to several advantages. The areas are densely populated and have higher household income.

Their target for outperforming peers is exceptionally high. While they did perform very well over the last few years, their occupancy is materially higher.

That is a sign of good management, but it also makes it more difficult to create additional growth in NOI since it will not come from leasing several vacant spaces. Management deserves credit for the very high occupancy rate. However, it should be seen as a challenge to continuing at that level of outperformance.

The emphasis on grocery-anchored properties should help ROIC to withstand weakness in the broader retail market. They have diversified their tenant exposure quite effectively:

The diversification among tenants is another benefit in the current market. However, many of their peers also have thoroughly diversified tenant pools.


VEREIT (VER) is a solid triple net lease REIT, but the overhang of litigation may still weigh on the share price. If those issues were resolved, they would be expected to trade at a higher multiple.

VEREIT is a triple net lease REIT. Their properties are comparable to Realty Income Corporation (O).

VER’s balance sheet is moderately more leveraged than O, but VER trades at a much lower multiple and carries a higher yield at 7.27%.

It is rare to see a dividend yield this high that is properly covered, but VER’s dividend coverage looks quite reasonable. VER carries a risk rating of 3 primarily due to their decision to run higher leverage.

VER was previously ruled out of coverage due to their ownership of Cole Capital, a sponsor of non-traded REITs. Earlier last year VER sold off their ownership of Cole Capital which simplified the company. The result is a much simpler triple net lease REIT with better corporate governance.

VER previously had some accounting problems. The executive suite had to be cleaned out and the entire board of directors has been turned over since then. We see no lingering problems in their financials. However, they are still settling the last of the charges.

Spirit Realty Capital

We purchased Spirit Realty (SRC) on 12/6/2018 for $7.46. It underwent a 1-for-5 reverse split. Since 5 shares became 1 share, the effective cost was $37.29.

Today, SRC is $36.52 and still easily worth a buy rating.

Spirit Realty is a newer net lease REIT. They have a diverse portfolio comparable to O and National Retail Properties (NNN).

We see SRC as having slightly less risk than VER. We will be keeping an eye on SRC’s performance over time, but we like the direction they are taking the balance sheet:

Final Thoughts

AvalonBay was recently in our buy range. We believe AVB is one of the best housing REITs and a great fit for conservative investors.

Macerich came well into our buy range. Their balance sheet as not as strong as SPG but we still believe MAC is a good fit for buy-and-hold investors. MAC is a buy.

ROIC is a hold. One of the main reasons we give them a high-risk rating is that management is comfortable running their leverage painfully high.

VER and SRC are triple net lease REITs that should do well over time. VER previously had some accounting problems. The executive suite had to be cleaned out and the entire board of directors has been turned over since then. We will be keeping an eye on SRC’s performance over time, but we like the direction they are taking with the balance sheet. VER and SRC are a buy.

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