The Intelligent REIT Investor The Source for REIT Investment Strategies.

53
The Intelligent REIT Investor The Source for REIT Investment Strategies

Transcript of The Intelligent REIT Investor The Source for REIT Investment Strategies.

Page 1: The Intelligent REIT Investor The Source for REIT Investment Strategies.

The Intelligent REIT InvestorThe Source for REIT Investment Strategies

Page 2: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Why REITs?

Page 3: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Real Estate Was the First Asset Class

Will Rogers said:

“Buy land. They ain’t making any more of the stuff.”

Page 4: The Intelligent REIT Investor The Source for REIT Investment Strategies.

What Type of Real Estate?

Today, there are 25 countries around the world that have adopted the REIT (or REIT-like) structure as a tax-efficient way for small investors to achieve the many benefits of owning an indirect interest in high-quality, well-located, and professionally-managed, income-producing real estate.

Page 5: The Intelligent REIT Investor The Source for REIT Investment Strategies.

The Universe of U.S. REITs

Page 6: The Intelligent REIT Investor The Source for REIT Investment Strategies.

A World of New Sectors

Data Centers Campus Housing

Page 7: The Intelligent REIT Investor The Source for REIT Investment Strategies.

This is Where I Went to College

Page 8: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Other New Sectors

Prisons Hospitals

Page 9: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Other New Sectors

MOB’s Movie Theatres

Page 10: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Other New Sectors

Gaming Single-Family Rentals

Page 11: The Intelligent REIT Investor The Source for REIT Investment Strategies.

How To Play the Game Then?

Page 12: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Why Play the Game?

REITs provide excellent diversification by reducing

risk without inhibiting returns. The more money you have to invest in REITs, the bigger your average position size should be, particularly if you are trying to achieve an optimally concentrated portfolio. I generally recommend that one should own between 10% to 20% in REITs and in some cases, depending on risk tolerances of course, 25% to 30% may seem reasonable

Page 13: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Diversification

By diversifying, you provide yourself with insurance that if one of your stocks blows up, it will not severely impact your egg's nest.

Page 14: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Liquidity

As a result of their liquidity, REITs have

become the most efficient way for investors and investment managers across the globe to gain exposure to commercial real estate; an effective way for professional investment managers to manage their investment exposure to real estate; and a meaningful way to reduce the risk of illiquidity.

Page 15: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Liquidity

As the investor base for

listed real estate has grown over the past decade, average daily dollar trading volume in the U.S. has soared – from about $100 million in 1994 to more than $4 billion today.

Page 16: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Liquidity

2013 was notable for

the robust REIT IPO activity – topping off the year with a total of 16 REIT IPOs on the NYSE which raised over $4.4 billion.

Page 17: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Transparency

REITs provide tax transparency, meaning that the REIT pays no

corporate tax in exchange for paying out strong, consistent dividends. Rather, taxes are paid only at the individual shareholder level.

In addition, REITs provide operating transparency, meaning that listed REITs are registered and regulated by the Securities and Exchange Commission and adhere to high standards of corporate governance, financial reporting and information disclosure. They are also covered by a robust group of Wall Street and independent analysts.

Page 18: The Intelligent REIT Investor The Source for REIT Investment Strategies.

REITs are FORCED to Payout Dividends

By law (est. 1960), REITs MUST payout at least 90 percent of their taxable income in the form of dividends.

Page 19: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Traditional Stock Model“Icing on the Cake”

Non-REITs are not forced to payout a dividend so the majority of their TOTAL RETURN consists of capital appreciation, not dividends.

So when these stocks pay a dividend, it’s just icing on the cake

Page 20: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Traditional Stock Model“Icing on the Cake”

Benjamin Graham wrote:

“Paying out a dividend does not guarantee great results, but it does improve the return of the typical stock by yanking at least some cash out of the manager’s hands before they squander it or squirrel it away”.

Page 21: The Intelligent REIT Investor The Source for REIT Investment Strategies.

The REIT Model

Total Return Most REITs return around 60%in the form of dividends and 40% in the form of sharegrowth.

Dividends + Share Growth =Total Return

Page 22: The Intelligent REIT Investor The Source for REIT Investment Strategies.

The Most Important Thing

Howard Marks:

“Successful investorsmanage to acquire thatnecessary ‘traceof wisdom’ that BenGraham calls for”.

Page 23: The Intelligent REIT Investor The Source for REIT Investment Strategies.

The Most Important Thing

Howard Marks:

“It’s the investors job tointelligently bear risk forprofit. Doing it well is what separates the best from the rest”.

Page 24: The Intelligent REIT Investor The Source for REIT Investment Strategies.

A Margin of Safety

Ben Graham:

“The margin of safetyconcept may be used to distinguish the differences in a investment operation and a speculative one”.

Page 25: The Intelligent REIT Investor The Source for REIT Investment Strategies.

A Margin of Safety

Ben Graham:

“The margin of safety is the essence of value investing because it is the metric by which hazardous speculations are segregated from bona fide investment opportunities”.

Page 26: The Intelligent REIT Investor The Source for REIT Investment Strategies.

A Margin of Safety

It's important not to use P/E for REITs, or to compare P/E for REITs with P/E for non-REIT stocks. Funds from Operations, or FFO, is a standardized metric, though not GAAP; AFFO is not standardized, and equity analysts have different ways of constructing it. Both of them are better than earnings for valuing REITs.

Page 27: The Intelligent REIT Investor The Source for REIT Investment Strategies.

A Margin of Safety

By utilizing price to FFO valuation, analysts and investors can determine the trading history of each REIT by itself and relative to the entire REIT sector. Accordingly, payout ratios are based on AFFO (adjusted funds from operations) because it more accurately measures cash flow when compared to net income (due to depreciation), and given the contractual nature of lease payments today, earnings growth rates are higher than the S&P.

Page 28: The Intelligent REIT Investor The Source for REIT Investment Strategies.

A Margin of Safety

So REITs should not only be compared to non-REIT stocks, but also to other fixed-income instruments.

Page 29: The Intelligent REIT Investor The Source for REIT Investment Strategies.

The Bottom of the 3rd Inning

Dr. Brad Case, Sr. VP NAREIT:

“REIT earnings suffered over the last few years as real estate operating fundamentals-rent growth and occupancy levels-declined dramatically. With the economy starting to recover, both rent growth and occupancies have started to improve, but REIT earnings are still low relative to a normal market environment”.

Page 30: The Intelligent REIT Investor The Source for REIT Investment Strategies.

The Bottom of the 3rd Inning

Dr. Brad Case, Sr. VP NAREIT:

“ Investors like REITs not just because they have strong current dividend yields relative to other income assets, but also because investors expect their operating earnings to grow strongly as the economy improves”.

Page 31: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Buy stocks as you would groceries – when they are on sale

Page 32: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Triple Net REITs

• Realty Income (O)• National Retail Properties (NNN)• American Realty Capital Prop.

(ARCP)• EPR Properties (EPR)• Agree Realty (ADC)• W.P. Carey (WPC)• Spirit Realty Capital (SRC)• Gramercy Property Trust (GPT)

Page 33: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Industrial REITs

• First Industrial Realty Trust (FR)• PS Business Parks (PSB)• Terreno Realty Corp. (TRNO)• Prologis, Inc. (PLD)• EastGroup Properties (EGP)• DCT Industrial Trust (DCT)• Duke Realty Corp. (DKE)• STAG Industrial (STAG)• Chambers Street Group (CSG)• Monmouth Real Estate (MNR)• Gladstone Commercial Corp.

(GOOD)

Page 34: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Shopping Center REITs

Federal Realty Regency Centers (FRT) Equity One (EQY)Brixmor Property Group (BRX)DDR Corp. (DDR)Retail Opportunity Investment (ROIC) Weingarten Realty (WRI)Kimco Realty (KIM)AmREIT Inc. (AMRE)Retail Properties of America (RPAI) Inland Real Estate Corp. (IRC)Urstadt Biddle (UBA)Excel Trust (EXL)Whitestone REIT (WSR) Wheeler Real Estate (WHLR)

Page 35: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Health Care REITs

Ventas, Inc. (VTR)National Health Investors (NHI)Sabra Health Care (SRBA)Healthcare Realty Trust (HR)Healthcare Trust of America (HTA)HCP, Inc. (HCP)LTC Properties (LTC)Health Care REIT (HCN)Aviv REIT (AVIV)Medical Properties Trust (MPW)Physicians Realty (DOC)Senior Housing Prop. Trust (SNH)

Page 36: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Where to Find “Sound” Value?

Page 37: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Where to Find “Sound” Value?

Page 38: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Where to Find “Sound” Value?

Page 39: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Where to Find “Sound” Value?

Page 40: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Where to Find “Sound” Value?

Page 41: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Where to Find “Sound” Value?

Page 42: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Where to Find “Sound” Value?

Page 43: The Intelligent REIT Investor The Source for REIT Investment Strategies.

I’ll Wait For a Sunnier Day

Page 44: The Intelligent REIT Investor The Source for REIT Investment Strategies.

I’ll Wait For a Sunnier Day

Page 45: The Intelligent REIT Investor The Source for REIT Investment Strategies.

I’ll Wait For a Sunnier Day

Page 46: The Intelligent REIT Investor The Source for REIT Investment Strategies.

I’ll Wait For a Sunnier Day

Page 47: The Intelligent REIT Investor The Source for REIT Investment Strategies.

MARGIN OF SAFETY

“If a stock is priced way over intrinsic value, it may become vulnerable to the ‘king is wearing no clothes’ syndrome”.

Page 48: The Intelligent REIT Investor The Source for REIT Investment Strategies.

My Approach

Like the legendary Ben Graham, I’m a student of intrinsic value as a method of determining what a company is worth – because when applied properly, I have an edge over the market.

Page 49: The Intelligent REIT Investor The Source for REIT Investment Strategies.

That’s Called Intelligent Investing

Getting in at the bottom of a stock market cycle produces better returns than getting in at the top.

Page 50: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Subscribe Today

Brad Thomas is the Editor of The Intelligent REIT Investor, also known as iREIT Investor.

Page 51: The Intelligent REIT Investor The Source for REIT Investment Strategies.

www.ireitinvestor.com

Page 52: The Intelligent REIT Investor The Source for REIT Investment Strategies.

Coming Soon

Page 53: The Intelligent REIT Investor The Source for REIT Investment Strategies.

SUBSCRIBE

www.iREITinvestor.com