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The Trump Factor
Synerg
“We see a buying opportunity shaping up in
U.S. REITs, as valuations have improved and
Donald Trump’s election has primed the
pump on growth and inflation expectations.”
Cohen & Steers
Backed by a party-aligned Congress, Presidentelect Trump may move aggressively to enact
fiscal stimulus, tax cuts, deregulation and
protectionist measures, carrying implications of
higher inflation and stronger growth in the U.S.,
but also adding risks due to uncertainties
around trade and geopolitics.
Source: Cohen & Steers
Increased business and consumer confidence,
and consequent spending and job growth, could
drive stronger demand for real estate while
higher input costs and rising return
requirements could reduce the economic
incentives to add new supply.
Source: Cohen & Steers
With REITs offering 4%+ yields and valuations
looking better, we believe further volatility could
present opportunities to increase real estate
allocations. In the 10 times since 1990 that the
REIT market has fallen below net asset value
(NAV), as it did in October, it has had an average
17% total return over the following 12 months.
Source: Cohen & Steers
REIT returns are driven mostly by fundamental
factors such as cash flows, competitive positioning
and the value of a company’s property holdings.
With the economy still improving, we believe REITs
should be able to perform well based on dividend
yields above 4%, continued strong cash flow growth
and attractive valuations relative to the private
market.
Source: Cohen & Steers
And then there’s the
Trump Factor—which
could be a game
changer for the
economy, potentially
extending the real
estate cycle.
What are REITs?
 A REIT, or Real Estate Investment Trust, is a company that owns or finances
income-producing real estate.
 REITs provide investors with all types of regular income streams, diversification and
long-term capital appreciation.
 REITs typically pay out all of their taxable income as dividends to shareholders.
 REITs allow anyone to invest in portfolios of large-scale properties the same way
they invest in other industries – through the purchase of stock.
 Most REITs are traded on major stock exchanges, but there are also public nonlisted and private REITs.
What Rules Must REITs Follow?
 Pay at least 90 % of its taxable income in the form of shareholder
dividends each year
 Invest at least 75 % of its total assets in real estate
 Derive at least 75 % of its gross income from rents from real
property, interest on mortgages financing real property or from sales
of real estate
 Be an entity that is taxable as a corporation
 Be managed by a board of directors or trustees
What is the size of the global real estate securities
market?
 The global real estate securities market has a total market
capitalization of approximately $2.1 trillion, spread across 487
companies.
 The U.S. accounts for 40% of the current market, with 25%
represented by Asia Pacific and a relatively smaller portion from
Europe and other regions.
 More than three quarters of companies in the global real estate
securities universe are REITs or REIT-like structures, with the rest
consisting of real estate development companies and non-REIT
owner/operators.
What types of properties do REITs own?
 There are nine major classifications of property types, each with unique
characteristics based on its lease terms, barriers to supply and the factors
that drive tenant demand.
 For example, hotels rent out rooms by the day, whereas an office lease
may span 10 years or more.
 In general, companies that own properties with shorter leases are more
sensitive to economic cycles, since rents and occupancy levels adjust more
quickly to changes in demand.
 Property sectors that feature longer leases are somewhat less sensitive
given their more-bond-like cash flows.
US EQUITY REITs RELATIVE
PERFORMANCE
 Adding US Equity REITs can
increase the total return of the
portfolio.
 According to a NAREIT research,
since 1972 the US Equity REITs
Sector has outperformed most
popular US indices.
DIVERSIFICATION
 Adding REITs to a portfolio
can reduce total portfolio
volatility given its low
correlation with other
asset classes.
 This effect is amplified in
cases of balanced
portfolios with a higher
exposure to equities.
Why Active Management of
REITs?
A portfolio of real estate
securities may represent
thousands of properties and
assets across geographic
regions, property sectors,
management teams, financial
strengths and constraints
across the business cycle.
 Commercial real estate
have distinct characteristics
that can affect their cash
flows.
 Some REITs own properties
that tend to be more
sensitive to economic
cycles, while others have
more predictable income in
times of economic
uncertainty.
 Managing actively the
exposure to these different
factors can add value to the
portfolio.
 As many other asset
classes the unique
aspects of individual
companies can
significantly affect
performance and multiple
valuations.
 Bottom-up analysis and
experienced knowledge
of the US real estate
market can help to add
value to the portfolio.
Property Sectors Out of Favor…
Shopping Centers / Malls
Health Care
Lodging (Hotels)
We See Value in…
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SPG is rated ASPG has strong growth
SPG is diversified
SPG owns “A” Malls
SPG has Quality Management
SPG is trading at a discount
SPG has a 4.1% yield
SPG trades at 15.9x P/FFO
Simon Property Group (SPG)
We See Value in…
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SKT is rated BBB+
SKT has strong growth
SKT is the “outlet pioneer”
SKT has strong dividend record
SKT has record occupancy
SKT is trading at a discount
SKT has a 4.0% yield
SKT trades at 13.7x P/FFO
Tanger Factory Outlets (SKT)
We See Value in…
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KIM is rated BBB+
KIM has strong growth
KIM is largest owner of SC’s
KIM has solid redevelopment
KIM has experienced m-ment
KIM is trading at a discount
SKT has a 4.9% yield
SKT trades at 14.3x P/FFO
Kimco Realty (KIM)
We See Value in…
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VTR is rated BBB+
VTR has strong growth
VTR is well diversified
VTR owns “best in class”
VTR has experienced m-ment
VTR is trading at a discount
VTR has a 4.8% yield
VTR trades at 15.7x P/FFO
Ventas, Inc. (VTR)
We See Value in…
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OHI is rated BBBSkilled Nursing has strong S/D
OHI is diversified
OHI has strong dividend record
OHI has higher risk though
OHI is trading at a discount
OHI has a 7.9% yield
OHI trades at 9.9x P/FFO
Omega Healthcare (OHI)
We See Value in…
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CLDT owns limited service hotels
Brands like Hampton Inn, etc…
CLDT in strong markets
CLDT has strong growth record
CLDT has higher risk though
CLDT is trading at a discount
CLDT has a 6.8% yield
OHI trades at 8.6x P/FFO
Chatham Lodging (CLDT)
We See Value in…
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PEB owns boutique hotels
PEB has strong m-ment team
PEB in strong markets
PEB has strong growth record
PEB has higher risk though
PEB is trading at a discount
PEB has a 5.2% yield
PEB trades at 10.9x P/FFO
Pebblebrook Lodging (PEB)
We See Value in…
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STOR owns Net Lease
STOR has strong m-ment team
STOR has solid Payout Ratio
STOR can grow its dividend
STOR has sound growth ahead
STOR is trading at a discount
STOR has a 4.7% yield
STOR trades at 15.4x P/FFO
STORE Capital (STOR)
Under the Radar…
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HASI invests in “clean energy”
HASI’s revenue is 99% IGC
HASI has good record of growth
HASI has double-digit growth
HASI is very predictable
HASI is trading at a discount
HASI has a 6.5% yield
HASI trades at 16.4x P/E
Hannon Armstrong (HASI)
Under the Radar…
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WPC invests in Net Lease
WPC has unique platform
WPC has good record of growth
WPC has good discipline
WPC is rated BBB by S&P
WPC is trading at a discount
WPC has a 5.4% yield
WPC trades at 12.2x P/FFO
W.P. Carey (WPC)
Technology is a Must…
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DLR owns Data Centers
DLR is “global”
DLR has good record of growth
DLR has good discipline
DLR is rated BBB by S&P
DLR is trading at sound value
DLR has a 3.4% yield
DLR trades at 18.8x P/FFO
Digital Realty (DLR)
Technology is a Must…
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DLR owns Data Centers
DLR is “global”
DLR has good record of growth
DLR has good discipline
DLR is rated BBB by S&P
DLR is trading at sound value
DLR has a 3.4% yield
DLR trades at 18.8x P/FFO
Digital Realty (DLR)
Rising Rates?
When the economy is improving and fundamentals are strong,
yield-driven corrections are often a time to consider adding
allocations to real estate securities.
While REIT prices may be sensitive to changes in interest rates in
the short term, long-term performance depends more on real
estate fundamentals and the strength of the overall economy.
We believe investors who are aligned to take advantage of
temporary dislocations resulting from rising interest rates may be
rewarded in the long term
Brad Thomas is a leading
expert in REITs. He has
over 25 years of
experience as an investor,
analyst, and consultant.
He is the #1 analyst on
Seeking Alpha and he is
the Editor of the Forbes
Real Estate Investor.
Thomas is also a frequent
guest on Fox and he has
contributed for Forbes,
Barron’s, Institutional
Investor, Newsmax, and
Kiplinger’s. He is also the
co-author of The
Intelligent REIT Investor.
Thank You!
@rbradthomas
[email protected]