If you're young, you may have never heard of Rodney Dangerfield. If you liked comedy - or even just knew about comedy - during the '60s and '70s though, you probably have.
He was an enormous deal - him and his line "I don't get no respect."
No big surprise to either the young things or those more matured, "Rodney Dangerfield" wasn't the stand-up comic's real name. Born Jacob Rodney Cohen, he went by Jack Roy offstage.
But Jacob, Jack, or Rodney, the guy had the kind of talent that took him from telling jokes at resorts in the Catskill Mountains to becoming a mainstay on major late-night talk shows.
As Jay Leno once said, "He was quite simply the greatest stand-up comedian there ever was." And as his official website, Rodney.com, puts it, "Anyone can repeat a Rodney Dangerfield joke. But no one can tell one quite like the man himself."
So, what made him so effective?
Some - perhaps even many - would argue it's because he made every act about real life. And real life is an act you can either sigh about or poke fun at.
He managed to do both.
The Man. The Legend. No Myth About Him.
In the July 1980 version of Time Magazine, Jay co*cks published a review of Rodney Dangerfield. It was titled "Rodney Running Scared - How a Comic Made a Comeback From Nowhere."
As pulled from his official website, the intro reads:
"No breaks. No how. No way…
"The weeks of his life are run-on reminders of his inferiority. No luck. No chance. And of course - as a connoisseur of the hairsbreadth art of stand-up comedy will tell you - no respect. These components of Rodney Dangerfield's fractured comic mask form one of the unlikeliest success stories around."
The story goes on to tell how Rodney made his first appearance on The Ed Sullivan Show at age 45. Two years later, he was a guest on Carson, the first of 63 total appearances. And he went on to star in Hollywood classics like Caddyshack.
"Dangerfield… has put together one of the best comedy acts in the trade by dealing shamelessly in things other comics struggle to hide - like fear, anger, and humiliation."
Considering his signature line, I'd argue especially the latter. Here's just a smattering of his jokes (also taken from Rodney.com):
- I tell ya, with girls, I don't get no respect. I had a date with a girl. I waited two hours at the corner. A girl showed up. I said, "Are you Louise?" She said, "Are you Rodney?" I said, "Yeah." She said, "I'm not Louise."
- Oh, when I was a kid, I got no respect. I played hide and seek. They wouldn't even look for me.
- … My wife signed me up for a bridge club. Haha. Yeah. I jump off next Tuesday.
That was just Rodney Dangerfield for you.
Don't Judge a Comic - or an Investment - by His Cover
Of course, in reality, Rodney Dangerfield got enormous amounts of respect - and money - for what he did. He was just good at connecting with the human ability to feel insignificant.
Jack Benny apparently once told him that his signature line got people, cutting them right to the quick. Yet he managed to do it in such a way that made people laugh.
His mournful delivery, his "nervous tick" of adjusting his tie, his constant admissions of failure…
It shouldn't have been impressive. But it worked.
Which rather reminds me of REITs.
Recently, a follower left this comment on an article: "Why REITs?" As in, what makes them so special?
It's a valid question, and I don't begrudge it one bit. If anything, I'm more than happy to explain what's so great about real estate investment trusts.
As with the Rodney Dangerfield information, this will be old hat for some of you. In which case, feel free to skip down to the next segment where the actual recommendations lie.
But for those who don't know…
- The REIT sector is a $1 trillion-plus equity market.
- They're an exceptionally, even exclusively liquid form of real estate ownership.
- They provide an excellent form of portfolio diversification to reduce overall risk.
- They provide extreme levels of corporate transparency.
- They provide an average dividend yield of 3.6%.
And that's the shortlist. There's plenty to love about this asset class.
Stick with me, and I'm confident I can prove as much.
They might not look impressive compared to high-flying stocks like Apple (AAPL), Tesla (TSLA), or Amazon (AMZN). They might "get no respect" or recognition off the stage.
But if you give them the spotlight, just sit back and wait. Because you're in for quite the show.
The Respect and Rewards You Deserve
First and foremost, let me be clear. This is not 2008, as viewed below:
(Source: Yahoo Finance)
One of the "biggest differences" between REIT balance sheets between then and now is that they're significantly stronger today. The average leverage as I write this is near an all-time low of 32% compared with 63% in 2008 (as viewed below).
This puts REITs in a stronger position to weather this pandemic.
(Source: Cohen & Steers)
Although no REIT was prepared for the global pandemic, most management teams were prepared for the "next" recession. That means debt maturities are well staggered with less need to refinance.
And, of course with rates at historic lows, REITs have extremely attractive financing costs:
(Source: Cohen & Steers)
Yet you can see in the next chart that REITs are getting no respect, especially when compared with ordinary stocks.
The S&P 500 is up 7% year-to-date as gauged by the SPDR S&P 500 ETF Trust (SPY). The Vanguard Real Estate Index Fund ETF Shares (VNQ), meanwhile, is down 11%.
(Source: Yahoo Finance)
Now, around 50% of VNQ's holdings include higher-risk property sectors such as retail, lodging and office. There are others that have managed to outperform the S&P 500 this year, such as data centers and warehouses (see my latest article on Digital Realty here).
(Source: Yahoo Finance)
A Message From a Global Fund Manager
In a research report released earlier this year, Cohen & Steers explained:
"Recessions have historically preceded strong and sustainable gains in listed REITs… Today, real estate is once again repeating the pattern. After repricing sharply lower in response to the pandemic, listed REITs appear to have turned the corner from their March lows."
Here's more from the global fund manager:
"Through recessions and recovery cycles, a sector's cyclical sensitivities and secular growth drivers can have a significant impact on performance.
"In the current cycle, this has already been demonstrated by the outperformance of property sectors that benefit from increasing technology adoption, alongside the underperformance of retail and hotels.
"Typically, the best- and worst-performing sectors in the U.S. REIT market are separated by 40%-60% over a given calendar year. In just the first half of 2020, sector dispersion was over 70%...
"This highlights the opportunity for REIT managers to potentially enhance returns by dynamically allocating to securities that are best positioned to have stable or growing cash flows while side stepping secularly challenged sectors."
(Source: Cohen & Steers)
In other words, there's a very good reason that sectors like lodging and malls are getting very little respect because their business models are being significantly impacted by COVID-19.
Hotels remain challenged due to limited business travel and ongoing uncertainty. And significant headwinds exist for malls due to retail store closures, which the coronavirus accelerated.
While their cash flows may normalize at some point, these two sectors currently provide an added layer of risk.
In this article, I'm highlighting three of the top REITs we're buying that we believe could generate outsized returns. Of course, in order to find these gems, we must first seek out the companies that aren't respected by Mr. Market.
3 Bargains We're Buying
One of our top picks in the Cash is King portfolio has been Four Corners Property Trust (FCPT). It has returned 88% since we purchased it on March 23.
But I'm not recommending it as a buy today. Instead, I'm targeting Postal Realty (PSTL), another under-the-radar net lease REIT which owns 568 postal properties across 47 states.
Last week, we upgraded the company to a Buy, explaining that:
"PSTL is forecasted to grow AFFO (adjusted funds from operations) per share by over 29% in 2021. With a current dividend yield of 4.75%, PSTL could generate total returns in excess of 25%... over the next year or so."
After conducting careful research on this small cap REIT, we put our stamp of approval on it.
(Source: FAST Graphs)
Another top performer for our "Cash is King" portfolio is STAG Industrial (STAG). This one has returned +55% since we purchased it on March 23. But here as well shares already are priced for perfection, so we recommend waiting on a pullback.
Until then, we did upgrade Plymouth Industrial (PLYM) to a Buy.
In a recent video, we explained that Plymouth deserved this due to balance sheet improvements that allow it to execute on its acquisition pipeline. The company recently raised new equity from 7.45 million shares for net proceeds of $91.1 million. And although there's initial dilution, the long-term benefits here are attractive.
Plymouth is the cheapest industrial REIT today, with a:
- Price to funds from operations (p/FFO) of 7x vs. its peer average of 24x
- Dividend yield of 5.95% (down from 6.1% last week when we published the video).
We see 20%-25% annual returns forecasted going forward for this REIT that gets "no respect."
(Source: FAST Graphs)
Apartments and Offices in New York (Oh My!)
Our last "no respect" REIT pick is Clipper Realty (CLPR), a New York-based REIT that focuses on apartments and office. As I explained in another video, this company is:
- A small cap at about $120 million
- With 3.2 million square feet
- Consisting of 81% multifamily properties, 5% retail, and 14% mostly long-term office buildings.
Its development pipeline is moving forward, serving as a strong growth catalyst. Incidentally, that's also reflected in its 2021 FFO/share consensus shown below.
Risks are higher (hence the spec rating) for three reasons. There's high leverage of 75%, thin trading at just $120 million, and a definite focus on the New York market.
As you can see, Clipper is indeed riskier. But the potential for 30%-50% returns is obvious. That's why Spec Strong Buy is the official call.
(Source: FAST Graphs)
In Closing... Respect REITs!
It's virtually impossible to eliminate all investment risk. But our process of filtering REITs is unmatched.
By utilizing our all-new iREIT IQ quality scoring model, we can screen for the highest-quality REITs trading at the widest margin of safety.
Before I go, one last thing…
If you're ever concerned that REITs don't belong in your investment account, just check out the next chart. Since 1972, they've returned an annual average of 11.43%:
(Source: Nareit)
Given where we are in the cycle, now is the time to take advantage of mispriced opportunities - while paying very close attention to fundamentals, of course. As Cohen & Steers explains:
"For historical perspective, following the previous six market corrections of 10% or more, REITs on average have recovered faster and stronger than broad equities, benefiting from a reacceleration in demand combined with accommodative monetary conditions. While it's difficult to identify the trough in these periods, we believe investors should remain grounded and focused on fundamentals."
(Source: Cohen & Steers)
Or, to quote Rodney Dangerfield, "I can't get no respect."
Just lots of money.
Author's note: Brad Thomas is a Wall Street writer, which means he's not always right with his predictions or recommendations. Since that also applies to his grammar, please excuse any typos you may find. Also, this article is free: Written and distributed only to assist in research while providing a forum for second-level thinking.
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