In the contrarian world, it seems so awkward to punish investments for delivering stellar performance in a short period of time. This is what has happened to three publicly-traded real estate investment trusts (REITs).
The Kingsview Asset Management Leveraged REIT Program (KVAM-LRP) is based on collecting above average dividend returns and applying this source of cash returns to pay down the margin debt used to boost the total number of shares held in client accounts.
Because this is a contrarian strategy by seeking undervalued issues to purchase, the three that have been removed are being replaced by three, yet to be named, different REITs because the yields from the three winners have dropped lower, rendering them useless in contributing to making dividend payments to future account holders. KVAM-LRP is implemented for clients on a separate account basis.
EastGroup Properties Inc (NYSE:EGP) is a REIT that acquires and operates industrial properties in major Sunbelt states such as Florida, Texas, Arizona, and California. Corporate offices are located in Jackson, MS, which gives management a close to central location to monitor its operations. The average share price when first used in KVAM-LRP was $42.56. The latest price is $52.9, which translates into a simple holding period return of 24.32%. The dividend rate at this share price has dropped to 3.94%, making EGP too expensive to be part of this program.
Healthcare Realty Trust (NYSE:HR) owns, operates, finances, and develops properties that are involved in the delivery of healthcare and outpatient services throughout the United States. At the time this was first placed into the program the share price was $18.31. The recent close now has it priced at $24.22, giving a holding period of return of 32.28%. The dividend yield at this new price has dropped to 4.95%. HR now costs too much and is no longer a contrarian value investment.
Liberty Property Trust (NYSE:LRY) is a self administered trust that owns and operates industrial and office space properties. Buildings classified for use in light manufacturing, warehousing, and research and development facilities are part of its portfolio. When LRY was first acquired, the average share price was $30.74 and the latest closing price is $36.11. LRY gave an open holding period return of 17.47%. While not as exciting as EGP and HR, it still is being replaced by another REIT that offers a better dividend return. Current yield has dropped to 5.62%.
Just because these three issues are being bumped out of the program does not reflect on the quality of what each one offers. An investor that is looking for a momentum based growth strategy these may make an ideal component, especially when applying a total return assessment.
As different as it appears, in the contrarian world, winners are ejected sooner and losers held longer in anticipation of the eventual turn around. This is the opposite of the old saying sell losers first and let winners keep running.
Jeffrey L. (Jeff) Stouffer is an Investment Advisor Representative and manages the Alexandria VA office of Kingsview Asset Management. As a practicing financial advisor serving the needs of individuals and small businesses, he believes in using a wide range of investment strategies, including alternative investments. All strategies are client centric and unique. He can be reached at firstname.lastname@example.org and is available to answer any questions about this combined approach.