REITs USA : NOW !

In search of a return that is both important and sustainable, the US listed real estate investment companies known as "REIT" in Anglo-Saxon law, present an interesting opportunity especially with regard to the payment of quarterly dividends equivalent to a return of up to at 12% annual. Given the large number and variety of US REITs, we made a drastic selection by selecting the five most attractive US REITs for our readers. We have indeed looked for companies with, among others: - A proven history, - Medium to large market capitalization, - A sustainable cash generation capacity, - Attractive valuations, - A reasonable remuneration of performance-based management.

In our selection, the average capitalization is $ 3.5 billion with an average rate of return of 8.0%. The average price / cash flow ratio is 13.5x.

Here is the list of our five REITs to focus on:

• Sabra Healthcare REIT (SBRA) = Health sector with a 7.2% return and a market capitalization of nearly $ 1.54 billion.
• Omega Healthcare REIT (OHI) = Health sector also with a return of nearly 7% for a market capitalization of $ 6.45 billion currently.
• Starwood Property Trust (STWD) = Commercial and service sector with a return of 8.9% and a market capitalization of $ 5.1 billion.
• Blackstone Mortgage Trust (BXMT) = Commercial sector with a yield of 8.7% and 2.7 billion dollars.
• Global Net Lease, Inc. (LNG) = Commercial real estate business sector for a return of 8.2% and a market capitalization of $ 1.5 billion.

It is important to note that we deliberately discounted residential REITs, despite current high posted returns of up to 12%. The reason is simple, investors have sold the securities of these companies in anticipation of lower cash flow while financing costs are likely to increase and that low returns on these assets (mortgages) are fixed for years to come. As a result, because of this potential "compression" of future returns, dividends currently paid by residential REITs are likely to decline over the medium to long term.

That's why we made our selection within the category of commercial REITs:
-First, two commercial health REITs, which specialize in renting care facilities for the elderly and / or sick and thus benefit from the evolution towards an aging society.
-Second, a diversified commercial real estate investment company with offices, shopping centers, hotels ...).
-Finally, REITs that invest in commercial mortgages and debt securities.

The main difference between these commercial and residential companies is the fact that, on the commercial side, interest rates on loans are generally variable, ie if interest increases, interest income will increase mechanically, as opposed to residential mortgages, which are usually set for long periods of time. Thus, the yield gap will penalize residential mortgage REITs in an environment of rising interest rates. On the other hand, commercial mortgage REITs could benefit overall and even benefit from higher earnings.

Another important reason why we chose these real estate companies listed on commercial real estate is the opportunity currently offered by this market. Indeed, for the 2016/2017 period, nearly $ 400 billion in commercial loans will reach maturity, hence the need for future refinancing. This is a major opportunity for lenders, who will be able to choose to a certain extent the borrowers seeking to refinance who present the best financial profile.
Finally, it should also be noted that the current relative economic strength of the United States should favor a strengthening of the US dollar over the long term.

Here is a more specific description of our top 5 American REITs.

Sabra Healthcare REIT (Ticker: SBRA)

As at March 31, 2016, Sabra's investment portfolio includes 178 properties held for investment purposes and leased to operators of 102 advanced and transition care facilities, 75 senior residences. Other notable investments include 17 investments in loans and lending transactions, as well as 10 preferred equity investments. As of March 31, 2016, Sabra Real Estate held for investment purposes included 18,332 beds / units, spread across the United States and Canada.
These are some of Sabra's major investment points:
• An average annual growth rate of cash flow from operations of 15% between 2011 and 2015
• Active in a sector with significant long-term growth prospects (aging population)
• Very experienced management with reasonable remuneration levels of management
• Anticipated reduction in leverage to reduce sector under valuation
• A niche market player with a focus on small towns
Omega Healthcare REIT (Ticker: IHO)

Omega Healthcare Investors is a company focused on advanced and transitional care facilities as well as seniors' facilities. The 80 different operators to whom the company leases the facilities are carefully selected in the United States and the United Kingdom. The heart of Omega's business model is to buy a single property or portfolio of properties and then enter into a long-term contract with an operator specializing in the management of this type of establishment.
Here are some of the important things about Omega Healthcare FPI:
• Very strong history of cash flow growth: 12% per year (per share) between 2004 and 2015
• No significant lease term on the short to medium term.
• A management team with an average seniority of 15 years
• Leader in his sector

Blackstone Mortgage Trust (Ticker: BXMT)

Blackstone Mortgage Trust is a real estate finance company that acquires loans secured by properties in North America and Europe. The Company's business is to be the leading real estate lending platform for global commercial purposes, the acquisition and management of commercial real estate loans.
Here are some key points related to Blackstone Mortgage Trust:
• Affiliation with Blackrock Real Estate, the largest real estate manager in the United States
• Extensive scale advantage as an industry leader
• Well positioned to benefit from Libor rate hikes
• Attractive valuation with a PE ratio of 10.7x
• Reasonable executive compensation with management compensation based primarily on performance and value creation for shareholders.

Global Lease Net, Inc. (NYSE Ticker: LNG)

Global Net Lease is a real estate investment firm focused on acquiring and managing a globally diversified portfolio of strategically located commercial real estate in the United States, United Kingdom, Germany, the Netherlands and Finland. The strength of this company comes from its extremely strong tenant panel that minimizes default on current leases.
Hereinafter, the main points of investment on Global Lease Net are:

• Highly profitable operating platform with an operating cost of only 1.16% of net real estate investments
• Global diversification with US and European investments (intangible impact of Brexit)
• A long-term vision for its lease portfolio (11 years)
• Access to attractive financing rates at a weighted average cost of debt of 2.5%

Starwoord Property Trust (Ticker: STWD)

Starwood Property Trust, a subsidiary of the global private equity firm Starwood Capital Group, is the largest real estate asset holder in the US. The primary business of the company is focused primarily on the acquisition, financing and management of commercial mortgage loans and other commercial real estate debt. Starwood also owns Hatfield Philips International, one of the largest loan managers in Europe, which is a company generating significant operational and recurring cash flow.
Below are some of the key investment points of Starwood Property Trust:
• No loss on the $ 26.7 billion of loans completed.
• A moderate debt ratio (LTV) of 61.3%
• 84.9% of the portfolio is indexed to LIBOR, which means that the asset-liability management of the company is aligned to take advantage of a rise in interest rates (1% LIBOR increase equals up 7 cents per share)
• Hatfield Philips' business of managing distressed real estate loans serves as a natural hedge because it works best when the real estate sector slips.
• Financing cost very low at 2.125% (compared to 3.875% in 2012)
• Based on Q1 2016, in terms of cash flow, a very attractive valuation with a multiple of 9.8x P / CF.
• Very strong convergence of interests between management and shareholders, including a CEO who holds more than 6.5 million shares valued at more than $ 120 million.