Roundtables With 10+ REIT Management Teams - REITweek Conference (1/2)
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Roundtables With 10+ REIT Management Teams - REITweek Conference (1/2)
Last month, I attended the NAREIT REITweek conference in NYC and got to meet with many REIT management teams. We already posted the takeaways from our interviews with VICI, BSR, VICI, FPI, UMH, and STAG and you can read them by clicking the links below (exclusive to members):
Interview With VICI Properties - REITweek Conference Part 1
Interview With BSR REIT - REITweek Conference Part 2
Interview With Whitestone REIT - REITweek Conference Part 3
Interview With Farmland Partners - REITweek Conference Part 4
Interview With UMH Properties - REITweek Conference Part 5
Interview With STAG Industrial - REITweek Conference Part 6
Next, we will share all my takeaways from roundtables with 10+ other REIT management teams. This includes:
Armada Hoffler Properties (AHH)
Realty Income (O)
Orion Office REIT (ONL)
Regency Centers (REG)
Global Medical REIT (GMRE)
American Tower (AMT)
Uniti Group (UNIT)
Postal Realty Trust (PSTL)
EPR Properties (EPR)
Digital Realty Trust (DLR)
Tricon Residential (TCN)
Today, we start with part 1 - focusing on the first half of these companies. We will then share part 2 a few days later along with a few Trade Alerts as we act on this new information:
Roundtables With 10+ REIT Management Teams - REITweek Conference (1/2)
I will keep each fairly short and focus just on the most important takeaways in the following order:
Armada Hoffler Properties (AHH)
Realty Income (O)
Orion Office REIT (ONL)
Regency Centers (REG)
Global Medical REIT (GMRE)
American Tower (AMT)
Armada Hoffler Properties (AHH)
The management explained that it baffles them that they trade at such a low valuation given how well their properties are doing.
They also reminded investors that they are themselves some of the biggest shareholders of the company and so they are motivated to see the share price reach its fair value.
Shortly after saying this at the conference, they announced a share buyback plan to take advantage of the discount. This confirms once more that the management is well-aligned with shareholders and not just all talk.
The market appears to have overlooked that they are concentrated on rapidly growing sunbelt markets. Some REITs get credit for this. They aren't.
Their offices are mixed-use properties, which are not comparable to traditional office buildings. These mixed-use buildings do so well because of all the other different uses.
Their two biggest office tenants have signed leases that go till 2035 and they have little lease rollover over the coming years.
They don't need outside equity to execute their growth strategy. They can recycle capital, retain some cash flow, and earn additional profits from their construction arm without having to invest their own capital.
You can read our investment thesis by clicking here.
Realty Income (O)
They are large in size, but that does not mean that they can't grow. It simply means that their acquisition strategy needs to evolve. Instead of targeting single property deals, which are very competitive, they are doing a lot more portfolio deals these days, and scale gives them a major competitive advantage.
Most investors can't target large and complex net lease portfolio deals because they couldn't put the capital together, wouldn't have the right cost of capital, and it would create concentration issues for them.
Besides, cap rates for portfolio deals have risen a lot more than for single-asset deals in recent quarters, giving them another major advantage in today's environment. This is simply because portfolio deals are less competitive.
They are now getting 7%+ cash cap rates, allowing them to still earn a nice spread over their cost of capital, especially in Europe.
Lots of big operators are now interested in pursuing large net lease transactions to raise capital and pay off debt. It suddenly makes a lot more sense to them given the uncertainty that we go through and the need to pay off debt.
You can read our investment thesis by clicking here.
Orion Office REIT (ONL)
Unlike what many articles state online, they don't own only triple net lease office properties. Many of their assets are "double net", which means that the landlord is responsible for things like the roof, structure, and/or the parking lot. This is bad for ONL.
They now openly state what we were saying more than a year ago. They will face huge capex as leases expire but no one really knows how much, not even them.
They seemed very pessimistic about single-tenant office buildings in the Chicago market specifically. They are trying to sell them, but it seems that there is little interest. Why would they talk so negatively about them if they are trying to sell the assets? Must be really bad!
They have previously tried to promote how they have high exposure to investment-grade tenants, but this is a double-edged sword because these tenants hold even more bargaining power at the time of the lease renewal.
In many cases, tenants don't care so much about the lease rate but they are requesting a ton of tenant improvements and that's really what will hurt them. If you get a 10-year lease, but you must invest 5 years of that upfront into remodeling, that's a tough business.
It seems to me that they own a lot of worthless properties with tenants that will vacate, poor long-term demand drivers, and tough or even impossible to release and sell.
Regency Centers (REG)
Not much new information here. Their focus on grocery and locations with superior demographics should allow them to nicely grow in the coming years as they capture the growth of the inflation into their leases.
Global Medical REIT (GMRE)
I was particularly impressed by this roundtable. The mood was positive, despite the very poor share price performance.
They don't plan or need to cut the dividend. Their payout ratio is a bit high today but they expect it to naturally come back down to their target range of 80-85% as they grow their FFO per share.
Their rents typically represent just 5-10% of the gross revenue of their tenants and the buildings are absolutely essential to their businesses. If they need to reduce expenses, they will find other expense lines.
They asserted several times that they are focused on accretive growth on a per share basis. They don't care about growing for the sake of growth. This is very encouraging coming from a small REIT.
They are selectively selling assets at low cap rates to pay off some debt and buy higher cap rate properties with more equity - reducing leverage on a per share neutral basis.
Their strategy is working really well. They focus on a niche that's overlooked by most investors by buying medical office buildings with shorter leases and some other issues in secondary markets. This allows them to buy the properties at high cap rates and they then fix issues to create value. They have lots of such opportunities and will return to more aggressive growth as their cost of capital improves.
They are not focused on the credit of their tenant. They are focused on the profitability of the asset. Similar to what STORE Capital used to do. They buy assets that enjoy a near local monopoly in their markets and get access to the financials of the property, which is key to their underwriting.
They are having great success with lease renewals despite the market fears, which they are struggling to understand.
You can read our investment thesis by clicking here.
American Tower (AMT)
They remain committed to growing by a high single-digit growth rate in the long run. This is interesting because it provides further evidence that CCI's long-term growth guidance is reasonable.
They seem especially optimistic about the opportunity in Africa. Their growth there is well above average. This is bullish for Helios Tower, which is a position in our International Portfolio.
The rest is coming soon...
Uniti Group (UNIT)
Postal Realty Trust (PSTL)
EPR Properties (EPR)
Digital Realty Trust (DLR)
Tricon Residential (TCN)
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Sincerely,
Jussi Askola
Analyst's Disclosure: I/we have a beneficial long position in the shares of all companies held in the CORE PORTFOLIO, RETIREMENT PORTFOLIO, and INTERNATIONAL PORTFOLIO either through stock ownership, options, or other derivatives. High Yield Landlord® ('HYL') is managed by Leonberg Research, a subsidiary of Leonberg Capital. All rights are reserved. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. The newsletter is impersonal and subscribers/readers should not make any investment decision without conducting their own due diligence, and consulting their financial advisor about their specific situation. The information is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The opinions expressed are those of the publisher and are subject to change without notice. We are a team of five analysts, each contributing distinct perspectives. Nonetheless, Jussi Askola, the leader of the service, is responsible for making the final investment decisions and overseeing the portfolio. We do not always agree with each other and an investment by Jussi should not be taken as an endorsement by other authors. Past performance is no guarantee of future results. Our portfolio performance data is provided by Interactive Brokers and believed to be accurate but its accuracy has not been audited and cannot be guaranteed. Our portfolio may not be perfectly comparable to the relevant index. It is more concentrated and may at times use margin and/or invest in companies that are not typically included in REIT indexes. Finally, High Yield Landlord is not a licensed securities dealer, broker, US investment adviser, or investment bank. We simply share research on the REIT sector.