Although I am sure that by this time next week I will be mourning the lack of baseball, I have to confess that for today I am glad the string of late-night games is finally over. I am getting too old to stay up this late that many nights in a row.
Before the first pitch last night, I was talking baseball and investing with an old friend and he was curious if there were any real estate-related securities besides Apollo Commercial (ARI) and Brookfield Properties (ARI) I would consider buying at current levels. I gave it some consideration and, although I will add the caveat that they could be quite volatile, there are a few that I think have outstanding long-term potential.
I believe shareholders of Northstar Realty Europe (NRE) will have very high returns over the next decade. It may be a very bumpy ride as we are still dealing with a very slow economy and the possibility of Brexit in front of us, so volatility may be quite high. Having said that, the REIT owns some high-quality assets in Germany, the United Kingdom and France that should be worth a lot more in 10 years. Northstar is in the midst of a capital recycling program and has sold nine hotels this year that it considers non-strategic and has one more under contract. The company is buying back both debt and stock and just announced an additional $100 million buyback program. The shares trade right at book value and are yielding 6.34%.
The price to book value ratio probably understates the value of Northstar Europe. On the conference call back in August, management said the estimate of net asset value based on a valuation done by Cushman and Wakefield was $17 a share, or almost twice the current share price. That value should increase over time as Europe sees slow economic improvement. Shareholders who can reinvest the dividend and tuck the shares away for the next decade should be very well rewarded.
I think the same goes for buyers of Arbor Realty Trust (ABR) . I have owned the commercial real estate (CRE) lender for a very long time, and I have said on several occasions that I hope never to sell it. Arbor invests in a broad range of financing projects, including bridge and mezzanine loans, which include junior participating interests in first mortgages, preferred and direct equity, discounted mortgage notes and other real estate-related assets. Arbor just announced it has also developed a crowd-funding project, ArborCrowd, that will allow qualified investors to invest directly in high-quality real estate assets selected by Arbor's real estate team. Insiders own about 35% of the company, so they have a lot of skin in the game and I view that as a huge plus. The shares trade at about 80% of book value and yield 8.82% right now.
I still like Ashford Hospitality Trust (AHT) at the current price. The company is making significant progress in repositioning and is continuing to sell off its portfolio of select-service hotels. So far, Ashford has sold nine properties and CEO Monty Bennett said earlier this year, "We continue to see solid interest in our select-service assets and will pursue transactions that we believe will create shareholder value for the company." There seems to be some doubt that it can achieve the goals as the stock is trading at just 70% of book value. I have a higher degree of confidence than most and think the stock is a solid buy here. Reinvesting the 8.6% dividend and riding out the bumps along the way should prove to be a profitable endeavor for patient investors.
Although there is no dividend to reinvest right now, I think that BRT Realty (BRT) is another REIT that should reward patient investors. BRT has transformed itself from a real estate finance REIT to a multifamily equity REIT, and no one has paid much attention. BRT owns 8,973 units at 31 multifamily properties located primarily in Sun Belt states. The company is buying back stock and insiders have been enthusiastic buyers of the shares all year around current price levels. The stock sells for 70% of book value, and that should grow in the years ahead and set-it-and-forget-it investors should see a long-term return of several times their purchase price for the shares.
There are not a lot of REITs that meet my strict valuation criteria, but the handful that do should provide long-term investors with outstanding returns.