Hedge Funds Are Betting On These REITs

Although REITs haven’t done well in 2015 due to expectations that interest rates would be hiked at any moment throughout much of the year, they have outperformed the market historically. According to REIT.com, REITs have generated an average annual return of 11.13% over the last 20 years, soundly beating the S&P’s average annual return of 9.85% during the same time. With that in mind, let’s take a closer look at the leading REITs that the smart money tracked by Insider Monkey favors, which are Northstar Realty Finance Corp (NYSE:NRF), Crown Castle International Corp (NYSE:CCI), Vereit Inc (NYSE:VER), American Tower Corp (NYSE:AMT), and Equinix Inc (NASDAQ:EQIX).

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 53 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. a 48.7% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 American Tower Corp (NYSE:AMT)

 – Number of Hedge Fund Holders (as of September 30): 42
– Total Value of Hedge Fund Holdings (as of September 30): $2.35 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 6.30%

Although it still isn’t exactly a high yielder, especially when it comes to the average REIT, as its dividend yield currently stands at 1.96%, American Tower Corp (NYSE:AMT)’s quarterly dividend has grown for three straight years, rising from $0.29 per share in 2013 to $0.49 in the latest quarter. Driving the dividend growth has been strong global demand for wireless and communication infrastructure real estate, as the world becomes increasingly digital. Given the faster connection speeds and more data hogging apps on the way, demand for American Tower Corp’s real estate should continue to grow at a healthy rate over the next five years.

#4 Equinix Inc (NASDAQ:EQIX)

 – Number of Hedge Fund Holders (as of September 30): 42
– Total Value of Hedge Fund Holdings (as of September 30): $3.24 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 20.80%

Hedge fund sentiment towards Equinix Inc (NASDAQ:EQIX) has stayed bullish, with 42 elite funds owning shares of the REIT at the end of the third quarter, up from 41 funds long the stock at the close of the second quarter. Seeing as one analyst has a ‘Strong Buy’ rating, seven have a ‘Buy’ rating, and seven have a ‘Hold’ rating, it’s not surprising that so many buy-side funds are long the data center REIT. Shares of the company are up by 36% year-to-date and analysts expect Equinix to grow its EPS by an average rate of 17% per year for the next five years.

#3 Vereit Inc (NYSE:VER)

 – Number of Hedge Fund Holders (as of September 30): 44
– Total Value of Hedge Fund Holdings (as of September 30): $1.48 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 21.10%

With Vereit Inc (NYSE:VER) continuing to trade at a discount to its triple-net peers and shares paying out a dividend with an annual yield of 6.8%, it’s not surprising that many elite funds are long the stock. Given that the company is selling real estate to increase its internal growth and strengthen its tenant diversity and balance sheet, elite fund holders such as Larry Robbins’ Glenview Capital hope the market begins to take notice of the stock’s improving fundamentals and award the stock a higher valuation. Analysts have an $11 consensus price target, suggesting that shares have 35.97% upside.

#2 Crown Castle International Corp (NYSE:CCI)

 – Number of Hedge Fund Holders (as of September 30): 46
– Total Value of Hedge Fund Holdings (as of September 30): $1.87 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 7.10%

Like American Tower Corp, Crown Castle International Corp (NYSE:CCI) is a wireless communication infrastructure REIT. Whereas American Tower has considerable international operations, Crown Castle is solely focused on the U.S, after the company sold its Australian unit to outside investors for $1.6 billion this year. Crown Castle’s U.S focus makes it more stable than AMT, and makes the company’s 4.17% dividend yield secure (the rising dollar doesn’t hurt Crown Castle as it does American Tower, for example). Shares of Crown Castle are up by 11% year-to-date.

#1 Northstar Realty Finance Corp (NYSE:NRF)

 – Number of Hedge Fund Holders (as of September 30): 59
– Total Value of Hedge Fund Holdings (as of September 30): $1.53 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 34.00%

Northstar Realty Finance Corp (NYSE:NRF) is a deep value play. With a net asset value of $29.07 per share and a stock price of just $16.42, Northstar is one of the cheapest REITs on any exchange. With an eye-popping dividend yield of 18.27%, Northstar is also one of the highest-yielding REITs. In late September, the company announced a $500 million stock repurchase program that should help improve the company’s price-to-NAV ratio. Among the 59 elite funds long the stock at the end of the third quarter was Lee Ainslie‘s Maverick Capital with a holding of 10.94 million shares.

Disclosure: None