There are investors who like to base their Reit selection on two criterias: Price to Book Value and Dividend yield.
This post was originally posted here. The writer, D Wong is a community member on InvestingNote, with username known as Pizzaprata.
Based on the latest quarter’s results and closing prices:
M Reit’s P/B is 1.41 and yield is 5.7%
S Reit’s P/B is 0.76 and yield is 6.9%
From the above M Reit looks overpriced and S Reit looks attractive. Both Reits had their IPOs just one month apart in Oct/Nov 2010 with similar IPO prices of 0.93 and 0.917 respectively. That’s where the similarity ends, from the price performance chart below you can see that M Reit has doubled it’s share price since IPO while the other has dropped to less than half.
The reason is simple, M Reit has consistently improved it’s DPU every year whereas S Reit had to cut it’s DPU over the years. Therefore a good management track record is a more important criteria. So quality reits don’t come cheap and if you are hung up about P/B ratios you would never have bought M Reit as it has never dropped below its book value since IPO. Including dividends, M Reit’s total return is more than 200% so you would have missed a 3 bagger.
However past performance is no guarantee for future performance. You need to look at the Reits results in detail to see if the distributions are sustainable and what projects they are doing to increase DPU. Tomorrow I will reveal the Reits and why I accumulated M Reit last week although seasoned investors would have guessed which Reits I am talking about.