Pandemic-Proof Performance: Own REIT Preferreds

Brad Thomas

467 postsSeptember 5, 2020

We believe that most REITs will survive the pandemic, continue to operate, continue to pay their cumulative preferred dividends, and have minimal impairment. This month we highlight three preferred REIT picks.

Remember that preferred shareholders are senior to the entire equity stack and sit senior to all common distributions. Given the dislocation in the sector today, we consider preferreds an excellent source of revenue and sustainability during the pandemic.

Preferred Pick 1

Saul Centers (BFS) is a self-managed, self-administered equity REIT headquartered in Bethesda, Maryland. It currently operates and manages a real estate portfolio of 60 properties that includes 50 community and neighborhood shopping centers and seven mixed-use properties with approximately 9.8 million square feet of leasable area, and three land and development properties.

Approximately 85 percent of the Saul Centers’ property operating income is generated by properties in the metropolitan Washington, D.C./Baltimore area. The principal amount of Saul Centers’ outstanding debt totaled approximately $1.1 billion at March 31, of which approximately $928.9 million was fixed-rate debt and approximately $199.5 million was variable rate debt outstanding under the credit facility.

Debt represents about 55 percent of the capital structure. Equity and preferred stock represent 36 percent and 9 percent of the capital structure, respectively. Additionally, Saul Centers has approximately $32 million in cash on the balance sheet.

Amortizing fixed-rate mortgage debt with staggered maturities from 2021 to 2035 represented approximately 82.3 percent of the Saul Centers’ notes payable, thus minimizing refinancing risk. Saul Centers has two series of preferred stock, BFS D and BFS E. Both preferred stocks are cumulative.

This means that if the dividend cannot be paid, it accrues until it can and is paid before common dividends. On or after January 23, 2023, BFS D is redeemable in whole, or in part, at a cash redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid. BFS E is redeemable on or after September 17, 2024. BFS D has a 6.125 percent coupon.

As of July 21, BFS D’s price and yield were $20.95 and 7.3 percent, respectively. BFS E has an 6 percent coupon. BFS E’s price and yield were $20.30 and 7.4 percent, respectively.

Preferred Pick 2

Ohio-based SITE Centers (SITC), formerly known as DDR Corp., a self-administered and self-managed REIT, is in the business of acquiring, owning, developing, redeveloping, expanding, leasing, financing and managing shopping centers.

SITE Centers owns approximately 57.0 million total square feet of gross leasable area (GLA) through all its properties and managed approximately 13.2 million total square feet of GLA for Retail Value (RVI), an owner and operator of shopping centers.

SITE Centers has approximately $2.2 billion in unsecured indebtedness and $54 million in mortgage indebtedness. Debt represents about 57 percent of the capital structure. Equity and preferred stock represent 35 percent and 8 percent of the capital structure, respectively.

Additionally, SITE Centers has approximately $514 million in cash on the balance sheet. Over the prior three years, it has been a net seller of assets and used the proceeds to deleverage.

From January 1, 2017 to December 31, 2019, SITE Centers sold 115 shopping centers for an aggregate sales price of $3.3 billion. On July 1, 2018, the company completed the spinoff of RVI. At that time, RVI owned 48 shopping centers, representing $2.7 billion of gross book asset value and $1.3 billion of mortgage debt.

SITE Centers has two series of preferred stock, SITC A and SITC K. SITC A is rated BB by S&P and BB+ by Fitch. SITC K is rated Ba1 by Moody’s, BB by S&P and BB+ by Fitch. The company is rated BBB- by S&P and BBB by Fitch. Both preferred stocks are cumulative.

On or after June 5, 2022, SITC A is redeemable in whole, or in part, at a cash redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid. SITC K is currently redeemable. SITC A has a 6.375 percent coupon. As of July 21, 2020, SITC A’s price and yield were $22.43 and 7.1 percent, respectively. SITC K has an 6.25 percent coupon. SITC K’s price and yield were $22.05 and 7.1 percent, respectively.

Preferred Pick 3

Vornado Realty Trust (VNO) is a fully‑integrated REIT and conducts its business through, and substantially all its interests in properties are held by, the operating partnership. The company has approximately $5.6 billion in mortgages payable and $3.8 billion in unsecured debt.

Debt represents about 55 percent of the capital structure. Equity and preferred stock represent 40 percent and 5 percent of the capital structure, respectively. Additionally, Vornado has approximately $1.6 billion in cash on the balance sheet.

Vornado currently owns 19.1 million square feet of Manhattan office space in 35 properties, 2.3 million square feet of Manhattan street retail in 70 properties, 1,991 units in 10 residential properties, the 1,700-room Hotel Pennsylvania located on Seventh Avenue at 33rd Street in the heart of the Penn District, and a 32.4 percent interest in Alexander’s (ALX).

Additionally, Vornado owns the 3.7 million square foot the MART in Chicago and a 70% controlling interest in 555 California Street, a three-building office complex in San Francisco’s financial district aggregating 1.8 million square feet

Vornado has three series of preferred stock, VNO K, VNO L and VNO M. All three preferred stocks are rated Baa3 by Moody’s and BB+ by S&P and Fitch. The company is rated BBB by S&P and Fitch. All three preferred stocks are cumulative.

VNO K and VNO L are currently redeemable in whole, or in part, at a cash redemption price of $25.00 per share, plus an amount equal to all dividends accrued and unpaid. VNO M is redeemable on or after December 13,2022. VNO Khas a 5.7 percent coupon.

As of July 21,2020, VNOK’s price and yield were $22.51 and 6.3 percent, respectively. VNO L has a 5.4 percent coupon. VNO L’s price and yield were $21.21 and 6.4 percent, respectively. VNO M has a 5.25 percent coupon. VNO M’s price and yield were $21.21 and 6.2 percent, respectively.

This article was originally published on Forbes.com.

Happy Investing

Brad Thomas

467 posts

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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.

How to Stay Safe and Actually Profit from This Worsening Pandemic

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

Pandemic-Proof Performance: Own REIT Preferreds

Brad Thomas

467 postsSeptember 5, 2020

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Pandemic-Proof Performance: Own REIT Preferreds

467 postsSeptember 5, 2020

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