Author Topic: REITs- Why are they priced so low?  (Read 10977 times)

thepupil

  • Hero Member
  • *****
  • Posts: 1142
Re: REITs- Why are they priced so low?
« Reply #40 on: June 22, 2018, 09:39:57 AM »
The problem with small discounts to NAV / intrinsic value (small being defined as 20-40%) is that when things go up 15-25% they don't have a ton of upside beyond the compounding of intrinsic value, which for most of these things isn't at that high a rate. I personally don't find many a 50 cent dollar or multi-year compounder and am somewhat content to slum it in 70 cent dollar / low rate of compounding land, but it definitely has its annoyances. Probably selling some KIM soon to add to my already huge hedged Berkshire position.

Why do you think that something like KIM doesn`t compound as fast as BRK? BRK bookvalue growth was around 10% (without tax reform) over the last decade, with a 6.4% dividend yield KIM just has to grow NOI/dividends by 3.6% to match that. Don`t you think that is a pretty low hurdle?

well, management is guiding to 1.5-2% NOI growth and I don't really see the overall environment for strip/power centers getting much better, so I'm not sure if 3.5% growth is a "pretty low hurdle"; there are real issues in retail RE. At low teens I thought KIM was starting to price in some deterioration in economics of owning this type of stuff. I'm not convinced that deterioration is not happening (everyone seems to be developing/upgrading their way to quality, which illustrates that over time assets deteriorate and that some of these centers face obsolescence risk).

In general, all else equal, I'd consider a portfolio of businesses assembled by Warren Buffett to have better re-investment opportunities, intrinsic rate of compounding, etc particularly on a risk adjusted basis; I think NAV for Berkshire is in the $220-$250 range so it's not like you're paying a premium or even full value (I think most of Tilson's assumptions are reasonable). And all else equal I'd own much more Berkshire at the same discount to NAV; Berkshire gives me a warm and fuzzy feeling and I'll own some forever. Berkshire is a wife. Kimco is a one night stand, for me at least. I will probably err on the side of underestimating the ultimate upside. I mean one can dream and point out that KIM traded at 3.5% dividend yield not long ago.

EDIT: also, REITs do have a fair bit of drag from management overhead over time, whereas Berkshire's "expense ratio" would be measured in basis points
« Last Edit: June 22, 2018, 09:57:57 AM by thepupil »


gokou3

  • Lifetime Member
  • Sr. Member
  • *****
  • Posts: 453

LR1400

  • Full Member
  • ***
  • Posts: 157
Re: REITs- Why are they priced so low?
« Reply #42 on: June 27, 2018, 04:45:47 PM »
I donít agree with no middle at all. Thatís bs.

That may be the case for development but not investing.

Middle area and middle income allows value add and most consistent and largest renter base.


thepupil

  • Hero Member
  • *****
  • Posts: 1142
Re: REITs- Why are they priced so low?
« Reply #43 on: July 31, 2018, 09:34:41 AM »
I like FCE;  it will be sold. News a few months ago that EQC would buy. NEws out today that brookfield will buy, but not for a big premium. I think it gets taken out in the high 20's. Small position w/ costs of $19.40 / share though, not sure if I'd buy it post B-field bump (ya ya I know everyday you aren't selling you're buying).

Not quite high $20's, but I'll take it.
https://www.bloomberg.com/news/articles/2018-07-31/brookfield-is-said-to-near-6-8-billion-deal-for-forest-city

Overall, REITs have done quite well lately and the private market bid has come in a few times (Brookfield, Blackstone, etc.).

I'm more or less fresh out of interesting ideas, clinging to a large position in EQC (an exercise in watching paint dry) and a small, low conviction position in Vornado.

Recently took a look @ British Land in the m60's as % of NAV w/ an LTV of 26%, but the cap rate used to value NAV is 4-5% which is tough given the heavy retail exposure and Brexit/macro risks. 
« Last Edit: July 31, 2018, 09:39:01 AM by thepupil »

CorpRaider

  • Hero Member
  • *****
  • Posts: 2021
    • The Corpraider
Re: REITs- Why are they priced so low?
« Reply #44 on: July 31, 2018, 10:36:50 AM »
Did you listen to the EQC call yet?

thepupil

  • Hero Member
  • *****
  • Posts: 1142
Re: REITs- Why are they priced so low?
« Reply #45 on: August 01, 2018, 06:34:06 AM »
Did you listen to the EQC call yet?

Seems like more of the same, did I miss something significant that you heard/read?

CorpRaider

  • Hero Member
  • *****
  • Posts: 2021
    • The Corpraider
Re: REITs- Why are they priced so low?
« Reply #46 on: August 01, 2018, 09:19:17 AM »
No, I was just being lazy/hadn't read transcript yet.  I read it now.  Agree.