iREIT Daily

Figuring Out The Fundamentals With Payout Ratios

Brad Thomas

467 postsMarch 4, 2021

Quote for Today:

“Build up your weaknesses until they become your strong points.”
~ Knute Rockne

Source (Dunnottar Castle)

As we wind down this “week in review,” as it were, I’m flipping pages from chapter 10 of The Intelligent REIT Investor – which we referenced on both Monday and Tuesday – to Chapter 12.

For the record, Chapter 10 has plenty more worthwhile information in it then “just” detailing funds from operations (FFO) and adjusted funds from operations (AFFO). I really hope you get a copy when it comes out in a few months to find out how much more for yourself.

I wrote it to give you not just a good grasp of REITs… but a great grasp of them and what they’re capable of doing in your portfolio.

With that said, here’s today’s teaser, this time about the importance of payout ratios:

“A safe and growing dividend is mandatory to acquire a blue-chip [stock] label. That much should be obvious. But let’s discuss it for a few paragraphs anyway, starting with AFFO.
“Maintaining a modest payout ratio is good policy for two reasons: taking advantage of opportunities that come up and insuring against pitfalls. While REITs legally can’t keep too much of their money, they should be saving up some amount to properly handle life’s twists and turns, both positive and negative. If they’re paying out too much in dividends, that means they’re not in good shape to handle whatever’s around the next corner.
“When looking for an attractive figure here, it’s best to consider free cash flow in terms of AFFO, not FFO. That’s because we want to properly calculate for recurring capital expenditures, which can take quite a bite out of available money for dividend distribution – and therefore out of properly understanding what a REIT has going for it. If AFFO is $0.95 and the dividend rate is $0.85, the payout ratio would be 89.5% ($0.85 ÷ $0.95). Or we can reverse the formula to get a dividend coverage ratio of $112%.
“It’s important to know that payout ratios do fluctuate over time, increasing during periods when cash flow is weak. They can also go up because a company decides it doesn’t make sense to be buying anything up in a given season. In that case, a higher payout ratio might actually be the most efficient use of a REIT’s cash in the moment. Growth should never be forced.
“Higher payout ratios therefore don’t necessarily mean dividend cuts are looming. Most REITs in most environments are good at avoiding that. All the same, excessively high figures aren’t something to mess around with for the simple reason that dividend cuts aren’t something to mess around with. It doesn’t say anything positive about a company if it can’t manage its money well. That’s why most blue-chips have lower dividend payout ratios.
“They want to be properly prepared for whatever is coming down the road.”

2020 certainly showed us the value in that concept. And I hope it’s a lesson none of us forget going forward.

The World According to Commercial Real Estate

As mentioned yesterday, “VICI Properties (OTC:VICI) announced a 60 million share secondary offering after Apollo Global Management, Inc. said that it has entered into a definitive agreement to acquire The Venetian Resort and Sands Expo and Convention Center Operating Company in Las Vegas.”

Today the Daily REITBeat informs us that

“VICI priced 60 million shares of its common stock at $29/share” and Mr. Market responded favorably to the news (and pre-market is +2.1% today):

Source: Yahoo Finance

Of course, we have been buying VICI for quite some time now, recognizing that the company’s cost of capital and scale advantages serve as the wide most advantages. We have also been monitoring the payout ratio very closely, recognizing that VICI has the capacity to continue to safely grow its dividend.

Also in the news today (source: The Daily REITBeat), STAG Industrial (STAG) provided additional detail highlighting features associated with a subset of acquisition activity that has occurred during 2021:

– the acquisition of a property located in Sacramento, CA, was acquired for $25.9 million. The 267,284 thousand square foot building that is 100% leased to a tenant that has occupied the building since 1993.
– the 80,655 sf property located in Minneapolis, MN that was acquired for $10.2 million which was built in 2020 and is 100% leased to a subsidiary of a publicly traded company.
– the 370,000 sf property located in Omaha, NE, that was acquired for $24.9 million which is 100% leased to a subsidiary of a publicly traded, investment grade company that has occupied the building since 2016.

Once again, we have been monitoring STAG very closely too, and our bullish thesis is directly correlated to the improved payout ratio and continued dividend growth.

Finally, did you see Tanger (SKT) shoot up 9% yesterday?

Source: The Daily REITBeat

Also, look at the tech-REIT selloff yesterday (above chart on right-side). We’re monitoring these names very closely at Wide Moat Research, providing our members with the most up-to-date news.

Happy Investing

Brad Thomas

467 posts

View all my Posts

Brad Thomas is Senior Research Analyst at iREIT and CEO of Wide Moat Research LLC. With over 30 years of real estate experience, he is also long-time Editor of Forbes Real Estate Investor, a monthly subscription-based newsletter that dives deep into the vast world of profitable properties, and since 2021, he has served as an adjunct professor at New York University.

Thomas has also been featured on or in Forbes magazine, Kiplinger's, U.S. News and World Report, Money, NPR, Institutional Investor, GlobeStreet, CNN, Newsmax, and Fox. And he was the #1 contributing analyst on Seeking Alpha in 2014, 2015, 2016, 2017, 2018, 2019, 2020 and 2021 based on both page views and number of followers.

Thomas is the recently-published author of The Intelligent REIT Investor Guide (2021), co-author of The Intelligent REIT Investor (2016), and he wrote The Trump Factor: Unlocking The Secrets Behind The Trump Empire (2016) - all available on Amazon.

Thomas received a bachelor of science in business/economics from Presbyterian College and is married with five wonderful kids.

Figuring Out The Fundamentals With Global REITs

REIT Mutual Fund	Symbol
Alpine Realty Income and Growth Fund	AIGYX, AIAGX
American Century Real Estate Fund	REAIX, REACX, AREEX, AREWX, ARYCX, AREDX
Real Estate Securities Fund	MRESX
AR Capital Real Estate Income Fund	ARIAX, ARICX, ARIPX
AssetMark Real Estate Securities Fund	AFREX
Aston/Harrison Street Real Estate Fund	AARIX, ARFCX
Baron Real Estate Fund	BREIX, BREFX
BlackRock Real Estate Securities	BIREX, BAREX, BCREX
Brookfield U.S. Listed Real Estate Fund	BRUAX, BRUCX, BRUIX, BRUYX
CGM Realty Fund	CGMRX
West Loop Realty Fund	REIIX, REIAX, REICX
Cohen & Steers Institutional Realty Shares	CSRIX
Cohen & Steers Realty Income Fund	CSEIX, CSDIX, CSBIX, CSCIX
Cohen & Steers Realty Shares	CSRSX
Columbia Real Estate Equity Fund	CREAX, CREIX, CRRVX, CRERX, CREEX, CRRFX, CREWX, CRECX, CREBX
Compass EMP REC Enhanced Volatility Weighted Fund	CWRAX, CWRIX, CWRTX, CWRCX
Davis Real Estate Fund	RPFRX, DREYX, DRECX, DREBX
Delaware Real Estate Investment Trust Portfolio II	DPRTX, DPRBX
Delaware Real Estate Investment Trust Portfolio	DPREX, DPRSX, DPRRX, DPRCX
DFA Real Estate Securities Portfolio	DFREX
Dunham Real Estate Stock Fund	DAREX, DNREX, DCREX
DWS RREEF Real Estate Securities Fund	RRRRX, RRREX, RRRAX, RRRSX, RRRBX, RRRCX
DWS RREEF Real Estate Securities Income Fund	REFAX, REFCX, REFIX, REFSX
Eaton Vance Real Estate Fund	EAREX, EIREX
EII Realty Securities Fund	EIIRX
Fidelity Advisor Real Estate Fund	FHEIX, FHEAX, FHETX, FHECX, FHEBX
Fidelity Advisor Real Estate Income Fund	FRIRX, FRIQX, FRINX, FRIOX
Fidelity Real Estate Income Fund	FRIFX
Fidelity Real Estate Investment Portfolio	FRESX
Fidelity Spartan Real Estate Index Fund	FSRNX, FRXIX, FSRVX
Fidelity Series Real Estate Equity Fund	FREDX, FREFX
Fidelity Series Real Estate Income Fund	FSREX, FSRWX
Forward Real Estate Long/Short Fund	KSRYX, FRLSX, FFSRX, KSRAX, KSRCX, KSRBX
Forward Real Estate Fund	FPREX, FFREX, KREAX, KRECX
Forward Select Income Fund	KIFYX, FSIMX, FFSLX, KIFAX, KIFBX, KIFCX
Franklin Real Estate Securities Fund	FREEX, FRLAX, FRRSX, FSERX
GMO Real Estate Fund	GMORX
Goldman Sachs Real Estate Securities Fund	GREIX, GRETX, GREAX, GRESX, GRERX, GREBX, GRECX
Great-West Real Estate Fund	MXREX
Heitman REIT Fund	OARTX, OBRTX
ING Real Estate Fund	CRARX, IREWX, IDROX, CLARX, CRWRX, CRCRX, CRBCX
INVESCO Real Estate Fund	REINX, IARFX, IARIX, IARYX, IARAX, IARRX, IARCX, AARBX
Ivy Real Estate Securities Fund	IRSAX, IREIX, IRSYX, IRSRX, IREEX, IRSCX, IRSBX
John Hancock Real Estate Securities Fund	JIREX
Johnson Realty Fund	JRLTX
J.P.Morgan Realty Income Fund	URTLX, JRIRX, URTAX, URTBX, URTCX
J.P. Morgan Security Capital U.S. Core Real Estate Securities Fund	CEEAX, CEERX, CEEFX, CEESX, CEECX
J.P. Morgan U.S. Real Estate Fund	SUSIX
Lazard U.S. Realty Equity Portfolio	LREIX, LREOX
Lazard U.S. Realty Income Portfolio	LRIIX, LRIOX
Manning & Napier Real Estate Series	MNRIX, MNREX
Morgan Stanley Institutional U.S. Real Estate Portfolio	MSUSX, MUSDX, MSULX, MURSX
Natixis AEW Real Estate Fund	NRFAX, NRFYX, NRFBX, NRFCX, NRFNX
Neuberger Berman Real Estate Fund	NBRIX, NBRFX, NREAX, NRERX, NRECX, NRREX
Nuveen Real Estate Securities Fund	FREAX, FARCX, FRSSX, FREBX, FRLCX, FREGX
Oppenheimer Real Estate Fund	OREAX, OREIX, OREYX, ORENX, OREBX, ORECX
PHOCAS Real Estate Fund	PHREX
PIMCO RealEstateRealReturn Strategy Fund	PRRSX, PETPX, PETAX, PETDX, PETCX, PETBX
Pioneer Real Estate Shares	PWREX, PYREX, PCREX, PBREX
Principal Real Estate Securities Fund	PIREX, PIRPX, PREPX, PRETX, PREJX, PRRAX, PRERX, PRENX, PRAEX, PRCEX, PRLEX
ProFunds Real Estate UltraSector ProFund	REPIX
Prudential Select Real Estate Fund	SREAX
Prudential U.S. Real Estate Fund	PJEAX, PJEZX, PJECX, PJEBX
REMS Real Estate Income 50/50 Portfolio	RREIX
REMS Real Estate Value-Opportunity Fund	HLRRX, HLPPX
Rydex Real Estate Fund	RYREX, RYHRX, RYCRX
SA Real Estate Securities Fund	SAREX
SEI Institutional Mgd Real Estate Fund	SETAX, SEIRX
Spirit of America Real Estate Income & Growth Fund	SOAAX
SSgA Clarion Real Estate Fund	SSREX
Stratton Real Estate Fund	STMDX
T.Rowe Price Real Estate Fund	TRREX, PAREX
TIAA-CREF Real Estate Securities Fund	TIREX, TRRPX, TRRSX, TCREX
Vanguard REIT Index Fund	VGSNX, VGRSX, VGSLX, VGSIX
Virtus Real Estate Securities Fund	PHRAX, PHRIX, PHRCX, PHRBX

REIT ETF	Symbol
Flex Shares	ASET
Wisdom Tree Global Ex-US	DRW
S&P 500 Equal Weight	EWRE
iShares FTSE Industrial/Office	FNIO
MSCI Real Estate Index	FREL
S&P REIT Index	FRI
First Trust S&P REIT	FRI
iShares Real Estate 50	FTY
Flexshares Global	GQRE
iShares Cohen & Streers	ICF
iShares International Developed RE	IFGL
iShares US RE	IYR
Premium Yield Equity REIT	KBWY
ETRACS Monthly Pay 2x Leverage	MORL
Market Vector Mortgage	MORT
iShares Global REIT	REET
iShares FTSE Mortgage	REM
iShares Residential	REZ
IQ US Real Estate Small Cap	ROOF
iShares FTSE NAREIT Retail	RTL
DOW Jones Global RE	RWO
SPDR Dow Jones	RWR
Schwab US REIT	SCHH
Super Dividend REIT	SRET
ProShares Ultra RE	URE
Vanguard REIT	VNQ
Vanguard Global ex-US	VNQI
iShares International Developed	WPS
Wilshire US REIT	WREI
Pacer Benchmark Data & Infrastructure RE	SRVR
Pacer Benchmark Industrial RE	INDS
Pacer Benchmark Retail RE	RTL
Hoya Capital Housing	HOMZ
NetLease Corporate RE	NETL

REIT Name	Ticker	Annual Increases/yr
Federal Realty	FRT	51
Universal Health Realty	UHT	33
National Retail Properties	NNN	29
Realty Income	O	27
Tanger Outlets	SKT	26
Urstadt Biddle	UBA	25
Essex Property Trust	ESS	25
W.P.Carey	WPC	22
National Health Investors	NHI	17
Equity Lifestyle	ELS	15
Digital Realty	DLR	15

Figuring Out The Fundamentals With Payout Ratios

Brad Thomas

467 postsMarch 4, 2021

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Figuring Out The Fundamentals With Payout Ratios

467 postsMarch 4, 2021

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