Download - REIT Investing Guide September 2011
-
8/2/2019 REIT Investing Guide September 2011
1/16
Research
:InvestingGuide
SupplementtoReSeaRch: magazine
I N P A R T N E R S H I P W I T H
the national association of real estate investment trusts
REITINVESTING
TheResearchMagazine Guide to
2011
-
8/2/2019 REIT Investing Guide September 2011
2/16
National Retail Properties (NYSE: NNN), a real
estate investment trust, invests in single tenant
net-leased retail properties nationwide.
NNN has generated consistent returns or
more than a decade supported by its strong
dividend yield and 22 consecutive years o
increased dividends. Its annual total return
or the past 15 years has been 12.3%.
NNN maintains a conservatively managed,
diversied real estate portolio with properties
subject to long-term, net leases with established
tenants. Its 1,248 properties are located in
46 states with a total gross leasable area o
approximately 13.6 million square eet. Current
occupancy is 96.9% and these properties are
leased to more than 285 tenants in 36 industry
classications. A net lease shits property
operating expenses (i.e., maintenance, taxes,
insurance and utilities) to the tenant, so the
rental revenue NNN receives has signicantly
ewer expenses and more stable net cash fow.
NNN is one o 105 publicly traded companies
in America to have increased annual dividends
or 22 or more consecutive years.
Top TENANT LiNEs of TrAdE
(As a percentage o annual base rent)
1. Convenience Stores 23.1%2. Restaurants - ull service 10.7%
3. Automotive Parts 7.7%
4. Theaters 5.8%
5. Automotive Service 5.4%
6. Sporting Goods 4.6%
7. Restaurants - limited service 4.1%8. Drug Stores 3.8%
9. Books 3.0%
10. Health and Fitness 2.9%
CompANy HigHLigHTs:
22 consecutive years o annualdividend increases
Strong balance sheet - investmentgrade rated by S&P, Moodys and Fitch
Diversied: 1,248 propertiestotalling 13.6 million s..
Total market capitalizationover $3.5 billion
Long-term net leases with averageremaining lease term o more than
12 years 96.9% occupancy
diVErsifiCATioN rEdUCEs risk
South22.4%
Midwest26.1%
Northeast10.7%
Southeast
29.7%
West3.9%
RockyMountain7.2%
Total Assets $2.8 billion
AFFO per share (Q2 2011) $0.42
Quarterly Dividend $0.385
Annualized Dividend $1.54
Annualized Dividend Yield (06/30/11) 6.3%
52-Week Stock Range $21.05 - $27.73
1,248 Properties
More than 285 Tenants
46 States
-
8/2/2019 REIT Investing Guide September 2011
3/16
1 Year 3 Years 5 Years 10 Years 15 Years
National Retail Properties(NNN)
21.3% 13.1% 11.4% 13.2% 12.3%
S&P 500 Index (SPX) 30.6% 3.3% 2.9% 2.7% 6.5%
Nasdaq (CCMP) 32.8% 7.6% 6.0% 3.3% 6.5%
S&P 600 Index (SML) 37.0% 8.1% 4.6% 7.8% 9.3%
Morgan Stanley REITIndex (RMS G)
34.1% 5.4% 2.4% 10.6% 10.7%
* Total retur n comprised of share price appreciation plus dividends paid
ANNUAL ToTAL rETUrN CompArisoN*
For Periods Ending June 30, 2011 (quarterly)
22 CoNsECUTiVE yEArs of iNCrEAsEd diVidENds
$1.50
$1.40
$1.30
$1.20
$1.10
$1.00
1990 1993 1996 1999 2002 2005 2008
*2011 estimated dividend based on annualized quarterly dividend
2011*
Kevin B. HabichtChie Financial Oicer
Investor Relations:Chris Barry
450 S. Orange AvenueSuite 900Orlando, FL 32801(800) NNN-REIT(407) 265-7348Fax: (407) 650-1044www.nnnreit.com
Inormation as o June 30, 2011 unless otherwise noted
NYSE: NNNAnnualized DividendYield: 6.3%
-
8/2/2019 REIT Investing Guide September 2011
4/16
Portfolio contains positive defensive attributes and is well
positioned for long-term growth.
Kimco increases returns and leverages infrastructure for
long term value creation using institutional joint venture
capital.
Able to capitalize on strength of retailer relationships,
portfolio size and 50-year history.
PREMIER SHOPPING CENTER INVESTMENT
& MANAGEMENT SERVICES COMPANY
www.kimcorealty.com
KIMCO REALTY CORPORATION (NYSE: KIM)
real estate investment trust (REIT), owns and operates North Americas
rgest portfolio of neighborhood and community shopping centers.
of June 30, 2011, the company owned interests in 946 shopping center
operties comprising 138 million square feet of leasable space across 44
ates, Puerto Rico, Canada, Mexico and South America. Public since 1991,
e company has specialized in shopping center acquisitions, development
d management for 50 years.
CONSERVATIVE B ALANCE SHEET
Strong balance sheet provides liquidity and funding exibility.
NVESTMENT GRADE RATING
Standard & Poors | Moodys | Fitch (BBB+/Baa1/BBB+)
MANAGEMENT TEAM
Established and well recognized.
KEY STRENGTHS
R E A L T Y
Kimcos Shopping Center Portfolio Contains Positive
Defensive Attributes and is Well Positioned for the
Environment & Long-Term Growth
Top 20 Metro Statistical Areas (MSAs), including Puerto Rico,generate more than 60% of Annual Base Rent
Strategic Asset portfolio boasts above average median household
income demographics versus the associated MSA
Bias toward high credit quality tenants under long-term leases
Non-discretionary food and pharmacy are some of our largest
tenants
Approximately 55% of properties contain a grocery/food component
Strong position with discount stores and off-priced retailers
Geographically diversied
Conservative policy regarding TIs means in-place rents are not
articially inated
Capturing value through the re-leasing of below-market spaces andexecuting redevelopment opportunities
INTEGRITY | CREATIVITY | STABILITY
-
8/2/2019 REIT Investing Guide September 2011
5/16
Researche p t e m b e r 2 O 1 1
email an sta member, use [email protected],
nless oterwise speciied. (Example to write Jon Smit, is
mail is [email protected].)
DITORIAL
oup Editorial Director James J. Green
tor Gil Weinreic
naging & Web Editor Janet Leaux
nior Editor Kennet Silber
ntributing Editors
obert Scott Martin,
ne Wollman Ruso, Ellen Uzelac
RODUCTIONDirector Jason T. Williams
ector o Production Georgia Barr (859) 692-2195
ector o Manuacturing Stee Jonston (859) 692-2116
Sales Coordinator Alice R. Kendrick (859) 692-2323
ROUP PUBLIShERndrew Sonnenberg (212) 557-7651
UBLIShER EMERITUSobert R. Tndall (415) 571-8474
SOCIATE PUBLIShERck Baggelaar (707) 939-1800
SPLAy ADvERTISING
ector o Salesilliam B. Stuart (203) 255-3896nior Sales Executie
ra haase (312) 504-8755ssifed Adertising
ameka Redle (646) 746-8878
ROKER SERvICESke Murp (859) 692-2184
UBSCRIBER SERvICESesearc Magazine, P.O. Box 2162kokie, IL 60076-7822one: (800) 458-1734 fax: (847) 763-9587
ww.submag.com/sub/rz
UMMIT BUSINESS MEDIAndrew L. Goodenougesident and CEO
omas M. FlnnO/CFO
aid A. MacDonaldO
n Welannior vice President andnaging Director, Media Diision
TERS TO ThE EDITOR: Please include writers name, address and pone
mber. Letters ma be edited or clarit and lengt. All submissions
come te propert o Researc and subject to publiser approal.
ease e-mail [email protected].
STMASTER: Send address canges to
searc, P.O. Box 2162, Skokie, IL 60076-7822
Winner of the nYSSCPA AWArd forexCellenCe in finAnCiAl JournAliSm
oo4 | 2oo5 | 2oo6 | 2oo7 | 2oo8 | 2oo9 | 2o10
new york society of
certified public accountants
NYSSCPA
5Increasing Client Returns
By Brad Case, Vice President, Research and Industry Information, National Association of Real Estate Investment Trusts
10Solid Returns & Positive Outlook
By ed MCCarthy, CFP
12Opportunities & Timing
By alexei Bayer
neW inVeStor fACt SheetS:
_____ Cedar Sopping Centers CDR
_____ KIMCO RealtKIM
_____ LTC Properties LTC
______National Retail PropertiesNNN
_____ Te Maceric Compan MAC
_____ W. P. CareWPC
Signature (required) date (required)
FirSt name (Please Print) initial laSt name
title COmpany name
COmpany area COde & telephOne number Fax number
COmpany Street addreSS upS/Fedex deliverynO hOme addreSSeS Or p.O. bOxeS pleaSe
City State Zip
e-mail addreSS (required)
Te ollowing act seets are paid adertisements prepared b te subject companies. Te ae not been reiewed or accurac b
ResearchMagazine, wic does not endorse or recommend securities. Researchreceies a ee or distributing tis Inestor Fact Seet.
FREEFACTSHEETSOrder right nOw its easy!
Call 800-458-2700 orFaxthis form to 859-283-4484 oreMail [email protected].
s e p t e m b e r 2 0 1 1 t h R e s e a r c h G r e i t i v g 3
INVESTINGREIT
TheResearchMagazine Guide to
2011i n p a r t n e r s H i p w i t H
the natiOnal assOCiatiOn OF real estate investMent trusts
-
8/2/2019 REIT Investing Guide September 2011
6/16
Macerich owns 70 regional malls in 72 million square eet, optimally located inthe nations most coveted markets defned by dominant market share, stronglong-term growth prospects and powerul demographics and psychographics.These malls are designed to deliver results with resh and exciting shoppingexperiences that start with undeniably lucrative markets and the very best inquality real estate.
Arrowhead Town Center - Glendale, AZ
Biltmore Fashion Park - Phoenix, AZ
Broadway Plaza - Walnut Creek, CA
Chandler Fashion Center -Chandler, AZ
Corte Madera, The Village at -Corte Madera, CA
Danbury Fair - Danbury, CT
Deptord Mall - Deptford, NJ
Fresno Fashion Fair - Fresno, CA
Freehold Raceway Mall - Freehold, NJ
Top 20 CenTers
Kierland Commons - Scottsdale, AZ
Los Cerritos Center - Cerritos, CA
North Bridge, The Shops at - Chicago, Il
Oaks, The - Thousand Oaks, CA
Queens Center - Elmhurst, NY
Santa Monica Place - Santa Monica, CA
Scottsdale Fashion Square -Scottsdale, AZ
Twenty Ninth Street - Boulder, CO
Tysons Corner Center - McLean, VAVintage Faire Mall - Modesto, CA
Washington Square - Portland, OR
Ivt rlati, Ja Wd
401 Wilshire Boulevard, Suite 700, Santa Monica, CA 90401310.899.6366 - www.macerich.com
Macerich (NYSE:MAC)
ngton Square
ns Center
Monica Place
s Corner
dale Fashion Square
-
8/2/2019 REIT Investing Guide September 2011
7/16
S E P T E M B E R 2 0 1 1 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g 5
R E I T I N V E S T I N G G u I d E 2 0 1 1
Increasing ClientReturns
Cash is said to be the enemy o
portolio perormance, and with
good reason: Every uninvested
dollar, ailing to earn investment returns,
brings down the average return o the
overall portolio. But theres a way to
turn cash to your clients advantage.
Many clients make the mistake o
thinking o their cash holdings as a port-
olio stabilizer. Its not hard to see why:
Cash is the risk-ree asset, with almostno volatility, so every dollar kept in cash
brings down the volatility o the portolio.
Portolio stability is important to clients,
o course but what clients may ail
to appreciate is just how costly it is to
achieve that purpose using cash.
Suppose your client wants her (or
his) equity portolio to beat the S&P
500, but with no additional volatility.
Also suppose you correctly predicted
that the strongest-perorming sector othe stock market over the recent past
was the inormation-technology sector
(13.07 percent average annual total re-
turns since January 1990, according to
data or the S&P 500 ino-tech index, vs.
9.44 percent or the S&P 500).
Unortunately, as usual, high-return
assets carry the baggage o high volatil-
ity. I your client looked to cash to bring
the volatility o her equity portolio in
line with the S&P 500, her cash holding
would have had to displace 44 percent
o her equity holdings. Using cash as a
portolio stabilizer would have brought
her equity returns down to 8.81 percent
per year costing her an extra 63 basis
points per year relative to the S&P 500,
in spite o your sector-picking skill.
Diversifcation is a much more ef-
cient way to bring down portolio volatil-
ity. In the same example, suppose you
had combined equal holdings o the
high-return ino-tech sector o the stock
market with listed equity real estate in-
vestment trusts (REITs), which give your
client exposure to a completely dierent
asset class income-producing real es-
tate without giving up the liquidity
and other benefts o the stock market.
With that combination, your cli-
ent would have been able to slash her
cash position by 54 percent, and the
combined assets would have generated
returns averaging 10.84 percent per year
again o 140 basis points per year
relative to the S&P 500 with, as required,
no incremental volatility.
In short, portolio stabilization is a
job best let in the hands o diversiying
assets. That doesnt mean, though, that
cash is the enemy: In act, cash can give
your client the latitude to beneft rom
your abilities in both strategic and tacti-
Using REITs and other investments in conjunction with cash can lower volatility andimprove performance.
By Brad Case
Vice President, Research and Industry Information, National Association of Real Estate Investment Trusts
Declining correlations
th hp bw reit d s&P 500 udmh v h h f h vm m hz
Source: NAREIT, June 2011 (based on 1989-2011 data)
0 20 40 60 80
54.5%
64.8%
56.5%
45.5%
32.7%
20%
4.7%
1 month
6 months
12 months
24 months
36 months
48 months
60 months
-
8/2/2019 REIT Investing Guide September 2011
8/16
Theres nothing fancy about everyday shopping needs: picking up dry cleaning
in the morning, grabbing pizza for lunch, shopping after work for a new DVD,
take-out food, sweat socks, shampoo or even bread and butter. Everyday necessity
shopping drives daily customer traffi c to the retail, food and big box stores at
Cedars Bread & Butter Shopping Centers. Our tenants have long-term leases that
generate predictable cash fl ow and our strong balance sheet permits us to take
advantage of attractive acquisition and redevelopment opportunities. Centers thatserve everyday shopping needs is our formula for good business.
Everyday Needs =Good Business
Lunch@PaneraBread- Noon
Fabricsoftener
pickup photos
Bread&butter
Coffeetoo
iTunescard
fertilizer,mulch
golf balls
Renew Drivers License
-
8/2/2019 REIT Investing Guide September 2011
9/16
GEOGRAPHIC FOOTPRINTIN HIGH-ENTRY-BARRIER MARKETS
We manage a portfolio of over 130 shoppingcenter properties with approximately 16 millionsquare feet of GLA, located in market areas thathave features that align with our business strategy:
Significant barriers to entry Stable communities
Fixed traffic patterns Anchor tenants are the prime operators intheir respective market areas
DEVELOPMENT PIPELINE
There are presently seven projects in theCedar Pipeline. Four are ground-up projectsand three are redevelopment projects. Thetotal budget for the seven projects is $60
million. Pre-leasing of the seven projects isin excess of 80% at this time.
ALL OTHER
HOME APPLIANCES/MUSIC
GOVERNMENT OFFICES
MEDICAL/DENTAL OFFICES
OFFICE SUPPLIES
HOME FURNISHINGS
DRUGSTORES/PHARMACIES
CLOTHING/ACCESSORIES/SHOES
PERSONAL SERVICE
DOLLAR STORES/NOVELTIES
FOOD SERVICE
ENTERTAINMENT/COMMUNITY
BUILDING MATERIALS/GARDEN
DEPARTMENT STORES
DISCOUNT DEPARTMENT STORES
SUPERMARKETS31%
8%
8%
8%
7%
6%
6%
4%
4%
2%
2%
2%
2%
2%
1%
7%
Mid-AtlanticStates
Other States
NortheastCoastal States
8.2%
60.9%
30.9%
DIVERSIFIED TENANT BASE
0%
5%
0%
5%
0%
5%
0%
5%
40%
45%
0%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
STABLE LOW COST DEBT*
*Does not include (a) $29.5 million outstanding balance under stabilizedproperty credit facility due in January 2012, subject to a one-year extensionoption, or (b) $103.1 million outstanding balance under development propertycredit facility due in June 2011, subject to a one-year extension option. Doesnot include managed properties.
Favorable debt maturities with a low average interest rate,provide underlying financial stability for our portfolio
LONG-TERM LEASE RENEWALS*
Scheduled Lease Expirations as a percentage of total annualizedbase rents
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
*Includes managed properties and month-to-month tenancies.
Our properties are leased primarily to supermarket,
big box and brand-name-retailer anchor tenantsalong with a highly diversified group of qualityeveryday necessity retail and food service tenants.
Cedar Shopping Center s, Inc.
Developers, Owners and Managers of
Bread & Butter Shopping Center s
www.cedarshoppingcenters.com
-
8/2/2019 REIT Investing Guide September 2011
10/16
8 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g S E P T E M B E R 2 0 1 1
R E I T I N V E S T I N G G u I d E 2 0 1 1
cal portolio choices.
By protecting your clients rom
short-term liquidity problems, cash can
help them also achieve strong long-term
investment returns. In eect, clients
can use cash to separate the serious
part o their portolio the portion that
they may or will depend on to nance
spending needs rom the unny
part on which they can earn seriously
high returns.
You can help accomplish this by en-
couraging your client to think o cash
not as a given percentage o her overall
portolio, but as a given number o dol-
lars enough so that shes comortable
her expenses will be covered through
even a severe downturn. That way she
knows she wont have to sell assets
during a downturn shell be able to
ride it out and benet rom being in the
market during the recovery. And that
knowledge will give her the condence
to use a more aggressive, high-return
asset allocation.
Several advisors suggest that cash
holdings should be enough to cover
between six months and three years oanticipated household spending. Insu-
lating your clients investment portolio
rom her liquidity needs makes it pos-
sible or her to realize the ull benets
o diversication.
To extend the previous example, i
your client were condent that her li-
quidity needs were covered, then she
might be comortable with volatility, say,
one-ourth greater than the S&P 500 in
her equity portolio.In that case, splitting her equity hold-
ings between the inormation-technology
sector and listed equity REITs would
have produced returns averaging 12.72
percent per year since 1990. With an
initial investment o $100,000 that eq-
uity portolio diversied among two
asset classes, beneiting rom strong
sector selection, and with easily toler-
ated volatility would have generated
terminal wealth (as o mid-2011) o more
than $1 million, 75 percent greater than
the $591,000 that would have come rom
the S&P 500.
As you know, assets with lower cor-
relations provide greater diversica-
tion. Surprisingly, though, the corre-
lations o assets rom dierent assets
classes are actually lower when your
clients are able to use longer invest-
ment horizons meaning that the
beneits o diversiication actually
become stronger when your clients
dont have to raid their investment
portolios, but can let the synergies
among dierent asset classes work
the magic o diversication. Thats
the real value o cash: giving your cli-
ents the comort level to benet rom
longer investment horizons.
Using the returns every six months
or stocks (the S&P 500) and listed
equity REITs (the FTSE NAREIT Eq-
uity REIT Index) since the beginning
o 1990, the correlation between RE-
ITs and stocks is 64.8 percent, indi-
cating strong diversication benets.
Thats not surprising, because REITs,
though traded through the stock mar-ket, give investors access to a dier-
ent asset class.
With longer investment horizons,
though, the correlation between REITs
and stocks declines sharply: just 56.5
percent using 12-month periods, 45.5
percent over 24-month periods, and
32.7 percent over 36-month periods.
(The correlations continue declining
over even longer investment horizons
to 20.0 percent over 48-monthperiods, and an amazing 4.7 percent
over 60-month periods but holding
enough cash to cover such long periods
would damage the returns o even very
wealthy investors.)
For investors who can avoid disrupt-
ing their portolios, then, the diversica-
tion benets o holding both REITs and
non-REIT stocks can be huge. For ex-
ample, the dot-com bubble corresponded
with a period o sotness in the commer-
cial real estate market; as a result, while
stock returns rom March 1997 to March
2000 averaged a stupendous 26 percent
per year, REIT returns were virtually fat.
Over the next three years, however, the
situation reversed, with REITs gaining
47 percent while stocks hemorrhaged 41
percent o their value.
In truth, it would have been di-
cult or even the most prescient and
gutsiest advisor to convince a client
to unload dot-com stocks and sink the
gains into REITs in March 2000. Far
better to have helped your client build
a portolio that was diversied or a
three-year investment horizon and
given her the condence to ride that
asset allocation through the markets
zigs and zags. That approach would
have given your client returns averag-
ing 6.1 percent per year during a very
dicult six-year market period, while
the S&P 500 returned just 3.4 percent
per year ultimately nearly doubling
her wealth.
(The REIT and non-REIT parts
o the stock market continue to move
very dierently. For example, romDecember 2007 to December 2010,
including the liquidity crisis, REITs
gained 8.8 percent per year on average
while stocks were losing 0.4 percent
per year.)
In short, computing correlation co-
ecients using monthly returns data
actually understates the longer-horizon
benets o asset-class diversication
while it overstates the benets o
diversiying across dierent non-REITsegments o the stock market.
Your task, then, is to help your client
develop a level o comort with investing
or the long horizon. She may need to
hold additional cash to cover liquidity
crises beore she can be ully condent
in the markets long-term potential
but once youve made her comortable
with long-term investing, you can bring
the power o diversication ully into
play to maximize her wealth. n
-
8/2/2019 REIT Investing Guide September 2011
11/16
Offering Size:
300,000,000 shares/$10 per shareCNL Properties Trust is a non-traded real estate investment trust (REIT) that intends to acquire a diverse
mix of assets that have the potential to generate a current return while providing long-term value to
investors. The REIT will focus on acquiring properties primarily in the United States within the healthcare
& senior living, lifestyle, lodging and specialty properties market sectors.
CNL Securities is the managing dealer for this offering. Copies of the prospectus may be obtained by contacting:
CNL Securities
450 South Orange Avenue
Orlando, Florida 32801-3336
www.CNLSecurities.com
Toll free: (866) 650-0650
Distributed by CNL Securities
Member FINRA/SIPC
This is neither an offer to sell nor a solicitation of an offer to buy the securities described herein. This sales and advertising literature must be read in
conjunction with the prospectus in order to understand fully all of the implications and risks of the offering of securities to which it relates. The offering is made
only by the prospectus. A copy of the prospectus must be available to you in accordance with this offering.
No offering is made to New York or Maryland residents except by a prospectus led with the Department of Law of the State of New York or the Maryland
Division of Securities, respectively. Neither the Attorney General of the State of New York nor the Maryland Division of Securities have passed on or endorsed
the merits of this offering. Any representation to the contrary is unlawful.
2011 CNL Intellectual Properties, Inc. All Rights Reserved.
CNL Properties Trust Built onExpEriEncE
SM
Scan this barcode with your smartphone
to learn more about CNL Properties Trust.
Standard data charges may apply.
www.CNLPropertiesTrust.com
-
8/2/2019 REIT Investing Guide September 2011
12/16
10 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g S E P T E M B E R 2 0 1 1
R E I T I N V E S T I N G G u I d E 2 0 1 1
Its been a good year or real es-
tate investment trusts (REITs).
According to the
National Association
o Real Estate Trusts
(NAREIT), the FTSE
NAREIT All Equity
REITs Index increased
by 10.62 percent in the
rst hal o 2011 versus
6.02 percent or the S&P
500. For the 12 months
ending June 30, 2011,
the REIT index was up
34.09 percent versus the
S&P 500s 30.69 percent gain.
Longer-term results also avor
REITs. NAREIT reports that the FTSE
NAREIT All Equity REITs Index has
outperormed the S&P 500 over the past
10-, 15-, 20-, 25-, 30- and 35-year pe-
riods ended June 30. Income investors
have beneted rom REITs, as well.
As o June 30, the FTSE NAREIT All
Equity REITs Indexs yield was 3.44
percent compared to 1.92 percent or
the S&P 500.
Research magazine asked two lead-
ing real estate portolio managers or
their outlook on the sector: Thomas
N. Bohjalian, CFA, senior vice presi-
dent and portolio manager or Cohen
& Steers U.S. and global real estate
securities portolios; and Paul Curbo,
CFA, portolio manager and member
o the Real Estate Securi-
ties Portolio Management
and Research Team with
Invesco Real Estate.
Wt is te rgumet
fr REITs s ivest-
met css?
Bi: Investors seek-
ing to diversiy their port-
olios beyond traditional
stocks and bonds would
do well to consider an al-
location to REITs, which are tied to real
assets commercial properties that
generate steady rental streams. Because
o this, the characteristics o this asset
class have been compelling.
Foremost, they oer the potential
or competitive total returns linked to
economic growth and attractive current
income due to REITs minimum pay-
out requirements. REITs are required
to distribute at least 90 percent o their
taxable income to shareholders. And
historically, real estate stocks have ex-
hibited low volatility and low correla-
tions to other asset classes.
Curb: I think rom a long-term per-
spective there are three main reasons or
investment in REITs. One is income, in
that REITs produce airly consistent cash
fow due to the underlying lease structure
o how they receive their income. That
produces a dividend yield o about 3.5
percent, which is relatively attractive
compared to the S&P 500 (under 2 per-
cent). Thus, income would be the rst
point I would make.
The second point would be diversi-
cation or an overall portolio. I you look
at the long-term diversication o REITs
as part o a portolio, the correlation with
the S&P 500 is around 0.54. Its also
a airly low correlation to an aggregate
bond portolio, with a long-term 30-year
correlation o 0.14. I think those overall
portolio diversication benets are help-
ul or most institutions and individuals.
Thirdly, I would say theres the long-
term historical perormance o the asset
class. Over a 20-year period, its deliv-
ered a return o 11.4 percent versus the
S&P 500 at 8.7 percent very competi-
tive historical returns.
Were u tik we re i te
REIT ivestmet cce?
Bi: REITs are in the recovery
and expansion phase o the investment
cycle. Real estate companies or the most
part exited the recapitalization stage o
the cycle in 2010.
Solid Returns &Positive OutlookTwo portolio managers share their outlook on the real-estate sector and explain howthe sector can beneft investors in terms o income, perormance and diversifcation.
By Ed MCCaRThy, CFP
BohjalIan
-
8/2/2019 REIT Investing Guide September 2011
13/16
S E P T E M B E R 2 0 1 1 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g 11
R E I T I N V E S T I N G G u I d E 2 0 1 1
Today, most property sectors in the
U.S. have bottomed out and turned up-
ward, setting the stage or even more
investment activity and accelerating
internal growth. We expect cash ows
will continue to improve as vacancies
decline and landlords gain the leverage
to charge higher rents.
Id note that, unlike previous com-
mercial real estate cycles, the current
one has been marked by low levels
o new supply. Construction loans
dropped o dramatically during the
credit crisis. This has resulted in ar
less o the problematic oversupply that
currently plagues residential markets
in some countries.
Crb: I would say its a pretty avor-
able point. I think were in the middle
o commercial real estate undamentals
being pretty healthy with demand out-
pacing supply. Also, earnings growth or
these companies is in the high single
digits to low double digits, and dividend
increases are likely to ollow on par or
even better than the earnings growth that
were seeing.I you look at the valuations today, the
stocks are trading at a slight premium to
the underlying asset value o the com-
panies. But given the improvement in
undamentals that were seeing and were
likely to see over the next couple years, I
think that its a airly good time to invest
in REITs. I would say the only caveat
to all this is the overall economy and
all the headwinds that we see in terms
o economic and employment growth.Those also present a headwind or RE-
ITs, as well.
Where are y fnding REIT invest-
ment pprtnities tday, and
why d y like thse sectrs?
Bhjalian:We avor economically
sensitive sectors, including hotels,
regional malls and high-growth urban
oices protected rom new supply.
Among regional mall companies, we
are ocused on geographic locations
with attractive income profles that can
better withstand ination in ood and
gas prices.
We also have a avor-
able view o apartment
landlords. They have
been benefting rom in-
creased demand, strong
pricing power and very
low new supply. Occu-
pancies have been sup-
ported by ewer people
having the confdence to
purchase single-amily
homes. It remains difcult
to obtain a mortgage, and home prices
continue to decline without reaching a
clear bottom making even those with
the means to buy a house reluctant to
leave their apartments.
Crb: One o the main places would be
the apartment space. All the turmoil that
were seeing and the very slow or lack o
recovery in the single-amily housing mar-
ket are really a beneft to the apartment
space. Home-ownership rates have comedown rom their peak they peaked in
2004 at about 69 percent. Today theyre
about 66.4 percent, but theyre still above
their long-term average.
Theres still a movement that were
seeing rom home ownership into rent-
als, which is benefting the apartment
space. That is most acute in the age de-
mographic o individuals in households
under the age o 35, who are the prime
renters or apartments. We see that asa long-term demographic shit that is
benefcial to the space.
In addition, new construction vol-
umes in apartments are quite low by
historical standards. Over the next two
or three years, we see below-average
construction volumes with airly decent
demand levels, which should result in
rent growth that is airly attractive.
I would also say the CBD (central busi-
ness district) ofce market is attractive.
Occupancy today is in line with its histori-
cal average, which you cannot necessarily
say or most sectors in the United States. I
think it entered the down-
turn relatively healthier
than most other asset
classes, and its recovery
has been a bit stronger.
The areas that are
most avorable are the
global gateway markets,
the largest markets in
the country New York,
San Francisco, Los Ange-
les and Washington, D.C.
those are the markets
with the healthiest trends today, and
we think theyre likely to continue to
outperorm.
Has the recessin and the ecn-
mys slw recvery changed yr
investment niverse?
Bhjalian: Remarkably, our invest-
ment universe emerged rom the reces-
sion largely intact. This is attributable
to successul capital raises done by
real estate companies, frst involvingequity oerings and then bond and
preerred security issuance, as well.
This enabled REITs to strengthen their
balance sheets and even make prop-
erty acquisitions on attractive terms.
Crb:I think the slow recovery does
have an impact. Our process o how we
look at sectors and markets begins with
a rent-growth orecast at the market
level. We take into account the dier-entiating characteristics o supply and
demand at that local market level, so
our views are really driven by our bot-
tom up research.
Tenant demand is a bit slower in
this cycle because the job growth is not
there. I talked about secondary retail
as being an area where theres a bit o
challenge. Another area is suburban
ofce, where we just need more job
growth or that sector to perorm. n
CuRBo
-
8/2/2019 REIT Investing Guide September 2011
14/16
12 T h e R e s e a r c h G u i d e t o R E I T I n v e s t i n g S E P T E M B E R 2 0 1 1
Therealestatemarketisthe
key to the rest o the U.S.
economy and its eventual
recovery. Thus, three years ater the col-
lapse o Lehman Brothers, weak prices o
single-amily homes remain a concern.
In other respects, though, real-estate
investment has been a very good deal.
The FTSE EPRA/NAREIT Real Estate
Investment Index has shown strong re-
turns recently ater sharp declines in
2007-2008, and gains continued through
mid-2011.
Bght Spots
Taking income and price into con-sideration, the index has outperormed
most other asset classes: U.S.-equity
REIT total returns o 11.79 percent were
more than double those o the S&P 500,
3.87 percent, in the rst seven months
o 2011, and signicantly outperormed
the market in July.
A number o sub-sectors o the real
estate market, which REITs allow in-
vestors to ocus on, have done well. The
sel-storage sector had a gain o 19.54percent through July 2011, apartments
improved 19.50 percent, and regional
malls moved up 18.41 percent.
Some REITs are beneting directly
rom the market bust. Shopping malls
anchored by value-oriented retail tenants
are doing well, because in the current
economic climate Americans are con-
cerned with saving money. Multi-amily
dwellings are also beneting, since there
has been a shit toward renting.
Some investment strategies iden-
tiy markets where prices have held up
well. Commercial properties and coops
in Manhattan or houses in and around
Washington, D.C., and Houston, or in-
stance, have been driven up because o
the infux o job-seekers. Even in dis-
tressed areas, there are some good mon-
ey-making ideas such as purchasing
distressed properties at rock-bottom
prices and renting them out.
However, there is a risk that too much
money will pile into too ew investment
opportunities. Bubbles tend to be a se-
rial event because they typically result
rom a particular investor mindset. Beorethe collapse o Lehman in 2008, bubbles
kept popping up one ater the other. The
real estate bubble began to defate in the
nal months o 2007, but stock prices took
o, pushing the Dow Jones industrial av-
erage to an all-time high. As stock prices
began to defate in early 2008, a bubble
emerged in commodities, as oil prices
surpassed $140 per barrel.
The same may be happening in
some select real estate sectors, likecommercial real estate in Manhattan,
which already seems overvalued, and
yet it keeps attracting strong infows o
money rom hedge unds, oreign sover-
eign unds and other investors.
Tunaound Tm
Real estate investment opportuni-
ties will probably continue to emerge,
though residential real estate will not be
able return to health meaning that it
will not start to bring solid, predictable
returns to investors until the current
crisis is overcome.
When will the turnaround occur,
then? The residential real estate sector
is a crucial part o the traditional eco-
nomic model: In a recession, the Federal
Reserve typically lowers interest rates,
which allows amilies who delayed buy-
ing homes to come into the market. The
housing market has a strong multiplier
eect on the rest o the economy, be-
cause buying homes also entails buy-
ing urniture, consumer electronics and
a second car or local commuting, hiring
landscapers, etc. Once existing homesbegin to move, the construction industry
comes back to lie, as well.
Sstmatc Soutons
The government could theoretically
develop a system that would eliminate
the backlog o homes in the market while
at the same time reducing the drain on
its resources (since Fannie Mae losses
end up on the lap o the taxpayer) and
reviving the construction industry.By introducing a gradual tightening
o requirements or energy eciency
or new and resold homes, and giving
homeowners generous tax credits and
subsidized loans to install solar panels
and water management systems, ecient
insulation and smart timers, the govern-
ment could plow some unds into giving
a leg up to domestic high-tech industries
and putting construction workers back
to work. n
By Alexei BAyer
Opportunities & TimingReal-estate investment trusts, some commercial sectors and even certain residential groups have donewell, building hope that the U.S. government may address issues affecting single-family residences.
R E I T I N V E S T I N G G u I d E 2 0 1 1
-
8/2/2019 REIT Investing Guide September 2011
15/16
R E I T I N V E S T I N G G u I d E 2 0 1 1
To order FacT SheeTS FroM TheSe coMPaNIeS, caLL (800) 458-2700 or uSe The order ForM oN Page 3.
Per share distributions paid by W. P. Carey 20092005 2007 2011*2003200119991/1998 inception, * As of 6/30/2011
Investing for the long run
PRISA, SpainDistribuidora de Televisin Digital (DTS) isthe largest provider of digital pay televisionin Spain and a subsidiary of PRISA, thelargest media company in the Spanish-and Portuguese-speaking world.
www.wpcarey.com
Since inception, W. P. Carey has consistently increaseddistributions by employing a conservative investmentstrategy and focusing on investing for the long run.
We are pleased to share the continuing success of thatapproach with our shareholders.
$0.433
$0.446
$0.498
$0.55
$0.467
$0.425
$0.4175
Past performance is not a guarantee of future results.This material does not constitute an offer to sell or asolicitation to buy any securities described herein.
Founded in 1992, LTC is a self-administered real e state investment trust (REIT) that primarilyinvests in senior housing and long-term care properties through facility lease transactions,mortgage loans, and other investments.
At June 30, 2011, LTC had investments in 89 skilled nursing properties, 102 assisted livingproperties, 14 other senior housing properties, and two schools. These properties are located in30 states. Other senior housing properties consist of independent living properties and properties
providing any combination of skilled nursing, assisted living and/or independent living services.
COMPANY HIGHLIGHTS
Diversified Portfolio of Well-Structured Leases and Loans
Attractive Yield and Well-Protected Monthly Dividend
Conservative Balance Sheet
Strong Management Team
CORPORATE OVERVIEW
Since 2003, LTC has grown its annual dividend from $0.65 to $1.68 per share.LTC currently pays a monthly dividend of $0.14 per share.
LTCPROPERTIES, INC.2829 TOWNSGATEROAD, SUITE 350 | WESTLAKEVILLAGE, CA 91361
805-981-8655 PHONE | 805-981-8663 FAX
DIRECT INQUIRIES TO:
GEOGRAPHIC DIVERSIFICATION
PORTFOLIO SUMMARY
SAFE AND GROWING DIVIDEND
Type of Property
Gross
Investments
% of
Investments
Rental
Income
Interest
Income
% of
Revenues
No. of
Props
No. of
SNF
Beds
No. of
ALF
Units
No. of
ILF
Units
Investment
per Bed/Unit
Skille d Nursing $348,195 47.3% $16,668 $1,776 45.2% 89 10,256 - - $33.95
Assisted Living 308,785 41.9% 16,565 1,306 43.8% 102 - 4,365 - $70.74
Other Senior Housing 67,011 9.1% 3,659 187 9.4% 14 913 330 423 $40.22
Schools 12,170 1.7% 627 - 1.6% 2 - - -
Total $736,161 100.0% $37,519 $3,269 100.0% 207 11,169 4,695 423
Six Months Ended
June 30, 2011
LTC has investments in these 30 states.
-
8/2/2019 REIT Investing Guide September 2011
16/16
is brought to you by NAREIT
REIT.com Exclusives
Breaking Financial News
Upcoming Earnings Calls
In-depth Articles from REIT Magazine
Dynamic REIT Industry Performance Data
REIT.com Video
Your single source for
real estate investment
news, analysis and data