A Crash Course In Sleeping Well At Night

This article will appear in the March edition of the Forbes Real Estate Investor. I wanted to provide you with this content a few days in advance.

Following healthy sleep habits can make the difference between anxiety and restful slumber. Researchers have identified a variety of practices and habits—known as “sleep hygiene”—that can help anyone maximize the hours they spend sleeping, even those whose sleep is affected by jet lag, or shift work.

Sleep hygiene may sound boring, but it just may be the best way to get the sleep you need in this social media-crazed world. According to Harvard Medical School Division of Sleep Medicine there are a few simple tips for making you become a better sleeper:

  1. Try to go to sleep and get up at the same time everyday
  2. Get as much natural sunlight as possible
  3. Move vigorously during the day—don’t sit for more than an hour
  4. Limit caffeine, nicotine, alcohol, and big meals at night
  5. Take time for relaxing activities before sleep
  6. Create a calm and restful sleep environment

One of the best ways for me to fall asleep at night is to unwind at night. As a REIT analyst, my days are filled with all sorts of phone calls, emails, and stress, and the best way for me to relax is to turn off the phone and computer and read. I recently started reading a book called “Mastering the Rockefeller Habits” by Verne Harnish. In the book, the author explains that “the two most important attributes of effective leaders are their abilities to predict and delegate.”

I began thinking about my role – as a leader – and the concepting of forecasting future results. In the book, Harnish states that “leaders don’t have to be years ahead, just minutes ahead of the market, the competition, and those they lead. And the ability to accurately predict revenues and earnings is the ultimate test of leadership from the perspective of Wall Street and the public markets.”

As I lay in bed, trying to fall asleep, it became crystal clear to me that my primary goal, as the Editor of the Forbes Real Estate Investor, is to enable my subscribers to sleep well at night and by providing investors with the most accurate REIT research, they could benefit from the selections within my stress-free REIT lab.

Let me be clear, there is no guarantee that all of my stock picks will be home runs. In fact, my goal is to hit single and doubles, that’s why you don’t see me recommending shares in most mortgage REITs (although we do cover commercial mortgage REITs).

This month I decided to focus my content on sleeping well at night (I’m even thinking about making March my annual SWAN edition).

As you know, in the REIT Lab. I have categorized the list of REITs based upon a SWAN (sleep well at night) ranking or a SALSA (steady and lasting share appreciation) ranking. The primary differentiator here is that a SWAN REIT has an almost impeccable history of durability.

In other words, the SWANs have been time-tested, as they have persevered under pressure. When you think of a SWAN, think of it as a “blue chip.” Also in the REIT Lab you will see that I have categorized the REITs based upon various sectors.

For any REIT investor, there are an increasing number of opportunities available and I will continue to add more sector names when I add more REITs to the Research Lab. Some of the sectors are too small (i.e. clean energy or infrastructure) so I lump them into the “diversified” category.

It Boils Down To The Dividends

John D. Rockefeller once said, “Do you know the only thing that gives me pleasure? It’s to see my dividends coming in.” (1)

As you know, I spend a lot of time studying REIT dividends. As far as I’m concerned, dividends are the most important element of the REIT investing process. Many institutional analysts and investors may disagree with me, but I believe dividends represent the treasure map for accumulating wealth, since total returns are generated by the success of the underlying dividend.

This month I decided to focus just on the SWANs in hopes of proving subscribers with a ranking of the best and worst. As an “effective leader” I also want to assist you with my predictions and of course, I also want to provide you with my target prices – insuring that you are buying the stocks with a definitive margin of safety. Even Rockefeller understood the concept as he once said,

The way to make money is to buy when blood is running in the streets.” (2)

Included in the REIT Lab, there are a total of 23 REITs listed as SWANs. These REITs are comprised of small cap, mid cap, and large cap names, representing a diverse cross-section of property sectors and sub-sectors. To become a SWAN, the company must have demonstrated a long-track record of dividend growth. Here is the list of SWAN, ranked by the most consecutive years of dividend growth:

The average Total Return for all SWANs on the list since January 29, 206 was 10.3%. Here’s a chart illustrating the performance:

Of course, we don’t own all the SWANs, we just own 13 of them, that comprise around 53% of the Durable Income Portfolio. Here’s the list of SWANs we own:

Here is how the SWANs we own have performed (since January 31, 2016): +14.4% (not weighted) and 16.7% (weighted). Note: I excluded SPG from the list since it was a recent investment.

As noted, SWANs represent 55% of the Durable Income Portfolio and we are always looking to increase exposure if possible. Owning the most durable dividend payers will enhance our overall returns while helping us sleep well at night!

As I said, “effective leaders are good at predicting performance”, so now I thought I would share some more details relative to earnings and dividend growth. Let’s start with Funds from Operations (or FFO) growth:

As you can see, I included FFO data for 2015 and 2016, along with consensus forecasts for 2017 and 2018. I shaded the chart in green: the darker green represents FFO growth of 6% of greater and the lighter green represents FFO growth of 3% to 5% per year. At the end of the article, I will rank the 23 SWANs based on FFO growth.

Now, let’s examine the SWANs based on dividend growth:

Again, I decided to color the SWANs: the darker green indicates dividend growth of 5% or higher and the lighter green represents dividend growth of 3% to 5%. I have also ranked these SWANs at the end of the article. As you know, Payout Ratios are also a good indicator for durability, so I decided to include this metric in the math:

To better reconcile the data, I decided to provide a scorecard that includes a ranking for all of the SWANs. Note: STAG is rated “BBB” by Fitch. Also, I have O an “8” for Payout Ratio because Net Lease REITs don’t need to pay much cap-ex and I consider the 84% payout ratio reasonable.

Viewing the list of SWANs (above chart), you can see that I already own several of the most durable (based on my analysis) including SPG (32.6), SKT (29.0), and DLR (27.6).

However, keep in mind, it’s not only important to own durable dividend payers, but to also purchase them with a tangible margin of safety. So, as I stated above, I will now provide you with the list of SWANs ranked based upon the variance of my price target and the current share price. I have color coded the data such that the green indicates “cheapness” (% variance from price target) and the red suggests shares are trading closer at or above fair value. Note: I have not SELLs on the SWANs (just BUYs and HOLDs).

Finally, always remember to maintain adequate diversification. While I wish that I could make a fortune – like Rockefeller – by owning one SWAN, it’s important to always maintain a healthy balance of stocks. But one last sleep well at night idea, and the reason I enjoy reading and spending time with my kids, as Rockefeller once said,

“If your only goal is to become rich, you will never achieve it.” (3)

  • Remark to a neighbor, quoted by John Lewis in Cosmopolitan (1908)
  • Attributed in The Fourth — And by Far the Most Recent 637 Best Things Anybody Ever Said(1990) by Robert Byrne; attributed elsewhere to Nathan M. Rothschild
  • As quoted in Complete Speaker’s and Toastmaster’s Library(1992) edited by Jacob Morton Braude and Glenn Van Ekeren