Green Street Advisors

 

 

Barron's: Time to Buy REITS

According to Barron's:  The 15% pullback in real estate investment trusts since their summer peak enables individual investors to buy a piece of some of the industry’s best companies—at dividend yields of 3% to 4%.

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“REITs are on the cheap side—not pound-the-table inexpensive but on the attractive side of fair value,” says Mike Kirby, research director at Green Street Advisors, a real estate research firm in Newport Beach, Calif.

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Kirby, for one, is perplexed that pension funds and sovereign wealth funds prefer to pay up for Manhattan properties rather than assemble a portfolio of public REITs at a much lower price. “New York is on sale in the office and apartment REIT market,” he says. For example, New York office specialist SL Green Realty (SLG), recently $94, trades at a 30% discount to the roughly $135 asset value that both Kirby and Goldfarb ascribe to the company.

Kirby is also a fan of of Public Storage, the leading self-storage REIT, whose shares trade at $204, down from an April peak of $277. While Public Storage’s growth in net operating income has slowed to below 5% from 8% a year ago, it still has an attractive outlook. “The self-storage companies have figured out that Americans are ridiculously irrational about what they will store and how much they will pay to store it,” he says.

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The death of malls is a long-running investor fear, but top malls—such as those owned by Simon, Taubman Centers (TCO), Macerich, and General Growth Properties(GGP)—should survive. “The situation isn’t as bad as conventional wisdom would suggest,” Kirby says. “Most retailers need both physical stores and an Internet presence. The top 100 malls shouldn’t see much impact because many retailers want at least 100 stores.”

Simon is the industry leader and “one of the best-run companies in any industry,” Goldfarb says, referring to the team led by CEO David Simon. Taubman is a laggard, despite possessing arguably the group’s best portfolio. It trades at $69, way below the $100-plus per-share value that activist investor Land & Buildings recently put on the company. Macerich turned down a $95 takeover offer from Simon last year and trades around $67.

Kirby says that General Growth Properties is intriguing. Canadian investment giant Brookfield Asset Management (BAM) is the controlling shareholder and might offer to buy out public shareholders at about $35—a nice premium to the current price of $24.50.

To view the full article from Barron's, click here.