Tuesday’s trading had 192 52-week highs, 19 times greater than the 52-week lows. Of the 192, 19 were real estate stocks, a sign the sector may have peaked.
Don’t take my word for it.
Barron’s contributor Jacob Sonenshine reported yesterday about the rally in real estate stocks, pointing out that the Real Estate Select Sector SPDR Fund (XLRE) is up 26% since hitting a multi-month low of $35 in April.
Sonenshine recommends that investors who bought REITs in April keep them as the average annual yield for them will be 5.1%, considerably better than what you’ll get for Treasury shares.
Sonenshine also reported that Evecore strategist Julian Emanuel believes REIT prices are ready for a breather because yields have stabilized and are moving higher.
Despite what I would suggest is a fair assessment of real estate stocks at the moment, three REIT names appear to have more room to run.
Douglas Emmett
I considered including Simon Property Group (SPG) in my trifecta of REITs because, as quality goes in real estate, you can’t get much better than America’s largest higher-end mall owner. Douglas Emmett (DEI) is a Southern California-based REIT that owns office and multi-family apartments in Los Angeles and Honolulu. I've written about the company for other publications I write for, but I believe it's the first time I've covered it for Barchart.
What attracted me to REIT was a report from Fortune in August stating that Los Angeles has the highest rate of renters in the country at 53%, almost 20 percentage points higher than the national average.
Being one of the biggest players in the LA rental market—it has 4,483 apartment units and 68 Class A office buildings in the two cities—seems to be a winning long-term play.
The value play here isn’t the multi-family holdings but the office properties. Who can forget LA office building owners defaulting on their mortgages in 2023? Large companies such as Brookfield (BN) got caught up in the work-from-home office meltdown.
The reality is that despite hitting its 20th 52-week high of the past 12 months on Tuesday ($17.68), it is still well off its 5-year high of $45.59, which it hit on Feb. 1, 2020.
With a healthy 4.3% dividend yield, get paid to wait for it to test new highs in the months and years ahead.
Acadia Realty Trust
Acadia Realty Trust (AKR) hit its 39th 52-week high yesterday at $23.35. It’s up over 35% year-to-date and 56% over the past year. However, it still has a long way to go before hitting its all-time high of $38.01 in July 2016.
In addition to having a healthy business, I selected Acadia because it only has 191 followers at Stocktwits, the 23rd-lowest number of followers among yesterday’s 192 stocks hitting 52-week highs. The more followers it gets, the easier it will be to continue hitting new 52-week highs.
As of September, it owned 177 properties among four core portfolio categories: Street (3), Urban (49), Suburban (59), and City Point (66). It owns retail properties in well-known locations such as Soho in New York City and Williamsburg in Brooklyn. Of the 59 properties in its Suburban portfolio, approximately 50% of them are anchored by grocery stores. That’s usually a winning proposition. You’ve probably spent time at many of their properties if you're a shopper.
It operates two operating platforms to deliver profitable growth: a Core Portfolio of best-in-class properties (4.9 million square feet) and an Investment Management arm (1.9 million square feet) for 6.8 million square feet.
Over the past three years, its average FFO (funds from operations) growth has been 5.1%. That might not seem like a lot, but if you do it over decades, it turns into significant added value for shareholders.
Focused on higher-income street and urban markets in large American cities, it has a sustainable business model that will continue generating FFO in good times and bad.
It yields a reasonable 3.1%.
Empire State Realty Trust
Empire State Realty Trust (ESRT) hit its 22nd 52-week high of $11.43 on Tuesday. It has a whopping 518 Stocktwits followers. I don’t know what the site considers a high following, but I guess it’s more than ESRT.
In late July, I wrote about the owner of the Empire State Building, discussing the various ways you could own a piece of one of America’s most iconic buildings. Four stocks are related to the building: The REIT itself (symbol ESRT) and three different series of shares in the operating limited partnership that runs the REIT: ESBA, OGCP, and FISK. There’s also a fourth series of shares that doesn’t trade.
Are you confused? You should be. It is a dog’s breakfast, which might be why investors do not pay attention to it.
When the REIT went public in October 2013, it combined several different LLCs (limited liability companies) and operating subsidiaries under the ownership of Empire State Realty OP LP Series ES (ESBA), the operating limited partnership.
For ESRT to retain its REIT status, it has to pass through at least 90% of its taxable income to its shareholders. It also has to be careful that it’s not seen providing services other than those normally expected from a real estate owner. It sets up one or more taxable REIT subsidiaries (TRS) that elect to pay tax on net income to avoid running afoul of REIT restrictions.
In terms of income, you won’t get rich with ESRT. It yields 1.2%. However, even though its stock is up over 41% over the past year, it’s still well below its all-time high of $22.31 from September 2016.
On the date of publication, Will Ashworth did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
