Get Ready, Reitsters!
04/02/2004 12:00 am EST
"Barry Vinocur , in a report entitled, 'REITsters Get Ready!' notes, "Because the latest pullback in REITs is unrelated to any specific REIT-land events, the pullback is an opportunity to add to some top plays before an expected rebound." Here are his best bets.
"Industry experts point out that the sector is seeing significant inflows and that looking ahead, there are some more inflows on the horizon. On the IPO front, there's a new closed-end fund from Neuberger Berman that will invest half of its assets in US-based REIT common and preferred shares. And, it is likely that a new fund from Calamos, which reportedly is on track to be one of the biggest ever, will put some of what it raises in REITs. Next, there are inflows that will come from the sale of preferreds IPOs. Put simply, there are hundreds of millions of dollars in closed-end fund inflows (at least) that will hit the sector over the next six to eight weeks. With all that in mind, we are taking a fresh look at our portfolio and stock picks.
"No surprise that we remain high on many of our long-time favorites, such as Chelsea Property Group (CPG NYSE) and Ventas (VTR NYSE). In addition, United Dominion (UDR NYSE) looks cheap based not only on its modest premium to NAV (under 10%), but also on a multiple basis. Looking at 2005 estimates vs. 2004 estimates, suggest UDR's growth will be slightly below the sector average, but that is more than priced into the stock already.
"In the shopping centers sector, Developers Diversified (DDR NYSE) has long been one of our favorites. Though the stock may not appear cheap on a NAV basis (at just north of a 20% premium), DDR deserves to trade at a premium to NAV for a number of reasons, including its savvy capital allocation and its strong management team, led by Scott Wolstein. Looking at growth rates and multiples, DDR looks attractive. Despite 2005 estimates vs. 2004 estimated sector-leading growth, DDR trades roughly in line with the shopping center REIT average, and at a discount to some of the sector leaders-a group we believe should include DDR. Finally, DDR is on our list of companies likely to post double-digit dividend increases in 2004.
"The mall REITs have been leaders in recent years and most buy-siders expect that to continue this year. We already have a number of mall REITs on our recommended lists, so we're reluctant to circle another name. Nevertheless, as we pored over our proprietary buy-side NAV survey and reviewed our comparative valuation spreadsheet, General Growth (GGP NYSE) hit us in the face. Not only a subsector standout, GGP also has been one of the best-performing REITs in recent years. GGP is trading at roughly a 25% premium. However, looking at other metrics (ones we're more comfortable with than NAV for the reasons we have chronicled), GGP looks enticing. Though it is expected to post sector-leading growth this year, GGP trades in line with the sector average multiple and at a discount to the sector leaders-a group that GGP deserves to be included in. For those waiting for an entry spot into GGP, this is it."