Indeed, it is important to distinguish the now-feverish REIT conversion trend from the more complicated activities of “conventional” mortgage-focused REITs. Companies that own large tracts of physical real estate assets often create REIT spin-offs in order to reduce internal costs related to land management and site acquisitions. Such spin-offs are also nicely positioned to take advantage of appreciating land prices. Reduced tax burdens are helpful as well.
On the other hand, “pure” REITs tend to experience predictable returns in exchange for stagnant growth and stock-price performance. While New Residential’s asset portfolio appears to be stable and profitable, investors who believe that the company’s stock price will appreciate rapidly may be in for an unpleasant surprise. Individuals who buy into this firm should expect healthy distributions but little in the way of capital gains.
Invest or Stay Away?
With this in mind, investors may be right to question the investment-worthiness of New Residential or its former parent. These securities are certainly not suitable for those who have a natural aversion to yield-producing stocks.
At the same time, New Residential Investment Corp (NYSE:NRZ) is attractive relative to many other REITs in the sector. With a healthy portfolio of stable mortgage-backed securities and servicing rights, it is likely to throw off substantial amounts of cash for some time to come.
However, investors who seek a combination of yield and growth may be even more interested in Newcastle. Given the secular tailwinds that benefit the assisted-living and senior-housing sub-sectors, Newcastle appears to be in a great position relative to its peers. If it continues to add to this part of its portfolio, investors may see some tangible benefits.
Overall, this recently completed spin-off offers advantages for retirement investors, yield-seekers and growth investors alike. Those who wish to leverage the expected growth in Newcastle Investment Corp. (NYSE:NCT)’s senior-housing assets would do well to look at that name. Those who prefer stable yield without excessive risk might be interested in New Residential. Given the sheer number of REITs out there, it is always a good idea to look at similar companies before making investment decisions.
The article Spinoff May Hold Value for New Shareholders originally appeared on Fool.com and is written by Mike Thiessen.
Mike Thiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Mike is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.