Making Money

It was value stocks’ time to shine. They rallied. 

They were too cheap to ignore. 

Real estate stocks with big exposure to retail properties took a big hit from COVID-19 disruptions. 

Here are two examples.

STORE Capital: Dividend Stock Yielding 5.6%

STORE Capital (NYSE:STOR) fell as much as 65% from last year’s high. Then, the dividend stock developed a base in the $16-18 range for about three months before appreciating approximately 46%.

Source: Stockcharts with author annotation

It still offers a nice yield of 5.6%. And it still trades at a discount of about 20% from its normalized valuation. However, it’s meeting short-term resistance right now at about $26. The price action in the next two weeks will tell us if it’ll break above it or not. 

The commercial real estate company has a diversified portfolio consisting of 2,552 properties across 49 states and 491 customers who operate across 113 industries.

99% of STOR’s portfolio is subject to triple-net leases whereby tenants pay all the expenses of the property including real estate taxes, building insurance, and maintenance. 

It has a weighted average remaining lease term of about 14 years. 

Its occupancy rate is 99.5%.

It has a weighted average annual lease escalation of 1.9% that helps its FFO keep up with inflation. 

STOR’s defensiveness has led to a stronger dividend growth history against its peers.

In Q1 2020, STOR generated AFFO per share of $0.49, up 2% year over year. The payout ratio was 71% for the quarter.

STOR’s last equity offering at $36.22 per share in Q1 2020 raised $148.6 million of net proceeds and it was good timing. The stock trades at more than 31% lower currently.

Brookfield Property: Dividend Stock Yielding 10.3%

Brookfield Property Partners L.P. (TSX:BPY.UN)(NASDAQ:BPY) is another real estate stock with big retail exposure. It has a core retail and office real estate portfolio that makes up about 85% of its balance sheet.

Some investors are worried about lower demand in retail and office real estate. COVID-19 could be a catalyst that quickens the death of low-quality malls and office properties. Thankfully, Brookfield Property’s assets are best in class. They tend to hold their values and maintain their occupancy and rental income. 

For example, BPY has iconic assets in gateway cities, such as New York, Miami, and Toronto.

Source: June 2020 REIT Week Presentation, Slide 7

You can also choose to own Brookfield Property REIT (NASDAQ:BPYU), which is the U.S. REIT version that’s essentially economically equivalent to BPY.

The dividend stock fell as much as 60% from last year’s high. The stock developed a base in the US$7-10 range for a few months before appreciating 42%.

It still offers a high yield of 10.3%. And it still trades at a discount of about 30% from its normalized valuation. 

The stock had a big rally recently and could be due for a pullback.

Food for Thought

Value investing is one of the best and safest ways to make money. 

The second wave in COVID-19 can cause another market selloff. Which value stocks are you planning to buy in the next market crash?

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Disclosure: As of writing, we own shares of BPY.UN and STOR.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

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