Peer comparison of largest 15 REITs with rentable office space >1 million m2.
As you know I have invested in REITs lately with Catching the dip #2 – Brookfield Property Partners (BPY) and Catching the dip #4 – Simon Property Group (SPG). Due to their massive yields. Now i’m looking at office REITs as I like the segment much more then Retail and I think offices are here to stay. Don’t say that work from home will kill it. It will not. Me and 95% of others will never work from home. There has to be a line separating work and home. I don’t work properly at home and worst don’t properly rest from work later as I feel somewhat still at work. Same goes for most of my collegues as well.
So digging into comparison I find my BPY most leveraged with 8x compared to average of 6x. Least leverage looks to be VNO, OFC, HIW and WPC. Also BPY pay most of earned EBITDA for interests. VNO stands out with substantial cash reserve after their sale. LTV averages around 50%. I calculste dividend payout baded on EBITDA minus interest (EBTDA). To my view it is better then FFO as you can do “improvements” in FFO with WCR changes for ex. increasing supplier payable. Here BPY stands out in a good way as massive 16% yield looks well covered: 1,3 bn$ dividend payment / EBITDA 6,6 bm$ – interest 2,9 bn$ = 35% payout ratio. Other big diversified REITs VER and WPC look bit more at risk for dividend cuts with payout 80-90%, altough they are less leveraged. On average office REIT looks secure with average 6% yield and payout of ~50%. There is value here due to declined share prices with Price/EBTDA around 10, and some even bellow. Yes RE will be hit by recession, but i’m willing to take that risk eith P/E bellow 10. So here are my top 3 from the list:
#1 – Vornado realty trust (VNO)
REIT with nearly 2 million square meters of prime office asset mainly in NY. Small portion of Prime retail and residential in NY, but absolute majority 80% is office. Company got lucky with divestment at 2H of 2019 and now they enjoy big cash reserve of 1,5 bn$ and low leverage – 5,2x Annualised dividends of 2,64$ leads to high dividend yield – 7,0% quite well covered payment with safe 63% payout ratio from EBTDA of 4,2$/share. Price/EBTDA – 9,0 and share price droped from 65$ to 38$ YTD -42% so to my view this looks like a good buy.
#2 – SL green reality (SLG)
Next we have another major NY office landlord with massive 2,7 million own square meters on Manhattan + another 1,5 million controled. Small portion of that or ~100k m2 is retail, so majority 98% is prime office in NY. Just announced monthly dividends of 0.295$ leading to very solid dividend yield – 7,9% with 71% payout bit on a higher side. Apart from high yield Price/EBTDA – 9,0 also looking attractive. Share price decline from 90$ to 45$ YTD -50%. Weak side is higher leverage – 6,9x.
#3 – Boston Properties, Inc. (BXP)
And third in the list the true office REIT king, largest of them all with near 5 million square meters and offices in major US cities – Boston, NY, LA, San Francisco and Washington DC. Dividend yield – 4,8% is comparably low, but with 50% payout looks safe. Price/EBTDA – 10,3 on a higher side. Leverage – 6,4x in line with average. Price declined from 135$ to 90$ YTD -33%. Decline lower then two above so as this REIT looks less attractive, but still its massive size matter. Scale in RE business becoming more and more important.
Next #4-5 to mynview would be HIW and BDN. Least attraktive looks to be DEI with higher leverage along with low yield and ARE with high P/E of 17x and low yield 2,8% not comparable with higher risk of investmemt in RE. I would rather go form JNJ then.
What if your view on REITs?