Real estate and real estate investment trusts have had a good run over the past seven years, but some of them may have reached their premium value and have probably become more of a burden than a blessing on your portfolio.
The company that holds and runs self-storage facilities throughout the country, Public Storage, has shown an amazing REIT performance over the past seven years. Its stock has gained over five times its 2009 value, with investors managing to collect a rather generous income from the dividend.
Right after the last big financial crises investors were buying the stocks of Public Storage for just over 1.5 times of its book value, with a 10 EV/EBIT. For a company that has been around for nearly half a century and has dominated self-storage industry, that was a clear bargain. However, as the shares now go for 8.5 times of book value with the 36 EV/EBIT, its stock might have become too expensive to hold on to at its current price.
Avalon Bay Communities
As one of the biggest owners of apartments in the country, Avalon Bay Communities boasts a portfolio of over 80,000 apartment homes scattered across eleven states and the District of Columbia. Considering the ever-growing migration from previous house owners to apartments, especially during the past seven years, this REIT did really well for those who predicted this shift.
After the crises, shares of the company were selling at around book value with 10 EV/EBIT. However, since then the stock’s value has gone up to six times its 2009 value, with today’s valuations putting it at 2.35 of book value and giving it 34 EV/EBIT. While once a really good investment, with a yield of barely above 3 percent, Avalon Bay Communities stock will now do much better for your portfolio once sold.