Meetings With 20+ REIT Management Teams (Part 1/2)

Please note that this is a free article of High Yield Landlord. If you find it valuable, consider joining our service for a 2-week free trial. You'll gain immediate access to my entire REIT portfolio, real-time trade alerts, exclusive REIT CEO interviews, and much more.

Meetings With 20+ REIT Management Teams (Part 1/2)

Last week, I attended the Citi Global Property Conference.

I participated in the roundtables of the following REITs and got to talk to many of their management teams: 

• Tricon Residential (TCN)

• American Homes 4 Rent (AMH)

• Federal Realty Trust (FRT)

• AvalonBay (AVB)

• Independence Realty Trust (IRT)

• Mid-America Communities (MAA)

• Camden Property Trust (CPT)

• Boardwalk REIT (BEI.UN)

• Alexandria Real Estate (ARE)

• Gaming and Leisure Properties (GLPI)

• VICI Properties (VICI)

• EastGroup Properties (EGP)

• Segro (SGRO):

• STAG Industrial (STAG)

• Germany: Grand City Properties & AroundTown - Relevant to Vonovia (VNA) & DIC Asset (DIC)

• National Storage REIT (NSR)

• Hotel REITs: Apple Hospitality REIT (APLE), Hersha Hospitality (HT), Chatham Lodging (CLDT)

• National Retail Properties (NNN)

• Essential Properties Realty Trust (EPRT)

• Spirit Realty Capital (SRC)

• Realty Income (O)

• W.P Carey (WPC)

Below, I share the main takeaway from the conference. In today's article, we cover about half of these REITs and we will then cover the other half later this week. 

Instead of repeating generalities about these companies, I will attempt to share only unique takes that I got from my discussions with the management and my observations of their behavior and nonverbal communication: 

Tricon Residential (TCN)

• They have never traded at such a low valuation. The CEO talked a lot about how incredibly low their valuation has gotten and explained that he thinks that long-term investors who buy at these levels can expect to make a lot of money over time. 

• The fees generated by the asset management business essentially allow them to pay all the G&A of the company, giving the management platform for free to TCN investors. 

• The asset management business also makes them less dependent on public capital markets. They can raise capital in private markets and earn fees for shareholders when the public market is closed. Their business combines fee and rental income. 

• They will launch their next big fund later this year and they think that this could be a big catalyst for the stock. Their private partners are telling them that they are ready to go and want to invest more in Tricon's funds whenever they are ready. 

• You can earn great returns with single-family rentals even with no leverage. If you buy at a 5.5% cap rate and manage to grow rents at 4% per year, you get to near double-digit total returns and you can then add the leverage later. That's why their private partners are still interested to invest and they are somewhat agnostic to leverage. 

• He thinks that their share price should be 2x higher. 

• They have a large loss to lease but they intentionally don't hike rents by too much at a time to keep turnover low and have happy tenants.

• It has never been cheaper to rent than to own. 

• They think that home values will stay put. He does not expect any major changes. 

• They expect 4-6% same property NOI growth for single-family homes in 2023. 

American Homes 4 Rent (AMH)

• Demand for single-family rentals remains "extremely" strong, especially in sunbelt markets, and despite all the headlines of new supply hitting the market, it is not enough.

• Their ability to develop their own properties is a major advantage as they are able to build higher quality properties that then enjoy higher margins and lower capex over time. They explain that peers will commonly buy properties with higher immediate accretion, but their own accretion is greater over time once you account for all the capex that goes into maintaining the properties.

• They expect 5% same property NOI growth for single-family homes in 2023.

• They are bearish on California and want out of it.

Federal Realty Trust (FRT)

• Property demographics did not matter much during the past few years because of the covid stimulus and the unusual behavior of consumers, but now things are returning back to normal, and FRT's superior demographics will lead to sector outperformance.

• Demographics are especially important in recessions. FRT properties are located in neighborhoods that enjoy high population density and household incomes. These neighborhoods are not nearly as badly affected by recessions.

• FRT's valuation is today historically low with the highest premium relative to its peer group.

• Their rents are around $29 per square foot on average, but they are signing new leases in the high $30s, providing a visible path to growth.

• 3-4% inflation would be very good for their business and they think that that's where we are headed.

• They are not a big fan of grocery-anchored strip centers because the anchor tenant has too much bargaining power over the landlord. Small tenants are at the mercy of the anchor and they know it.

• Retailers think long-term. They don't worry so much about the current rent and won't leave a great asset due to a recession. They ask themselves if they can make money over the next 10 years.

• The watchlist of trouble tenants represents less than 1% of their revenue.

• They don't believe in creating value by simply buying a property at a positive spread. They need to create value beyond what the market is offering them. They say that it would be very simple to buy a high cap rate asset and earn a high spread, but then they would face problems later. They rather buy lower cap rate assets with limited immediate accretion but significant long-term value creation potential.

• They have a great balance sheet to take advantage of this environment and acquire new assets from potential distressed sellers.

AvalonBay (AVB)

• AVB is unique in that it focuses on the suburbs of strong coastal markets. The demand for apartments is growing in suburbs, but new supply is limited in coastal markets. Ideal for a landlord.

• Permits are hard to obtain and it is very costly to build in their primary markets.

• Renting is especially cheap in their markets relative to owning. More so than in sunbelt markets.

• They see about $50 million of annual NOI uplift potential from increased efficiencies.

• They have a lot of capital recycling opportunities. More so than usual. They can sell old assets with limited growth at only slightly higher cap rates than new assets in faster-growing markets. Taking the dilution is worth it.

• They are able to control a large land bank without having to put much capital upfront to buy it. This is a unique advantage that they have thanks to their scale and reputation. Landowners are willing to create partnerships with AVB but wouldn't do such deals with many other companies.

Independence Realty Trust (IRT)

• Their investment story is very simple because they have no maturities for the next three years and no development projects.

• They are earning sector-leading returns on value-add projects. They are earning about 20% returns whereas most peers earn only about half of that.

• The imbalance between supply and demand still exists in the sunbelt markets for affordable housing. New development projects don't impact the class B segment as much since their apartments are already priced at large discounts. Their average monthly rent is $500 below that of new properties despite often enjoying better locations.

• They had some operational issues in the second half of 2022. This was mainly the result of their recent merger with another apartment REIT.

• They now replaced the leader of their revenue management system. They are bringing someone from Camden Property Trust (CPT) and they expect their occupancy to now rapidly recover to 95%.

• They expect 5% same property NOI growth for the apartment sector in 2023.

• They think that there will be fewer publicly listed apartment REITs a year from now. They expect buyouts to occur because valuations are discounted. 

Mid-America Communities (MAA)

• They think that they can create a lot of value and grow their NOI by simply implementing better tech across their platform. As an example, by offering smart home solutions to residents, they can add another $20-50 per month to the rent bill and the returns on investments are very high.

• Very few people who move to sunbelts are moving back despite a lot of media headlines making it seem to be very usual.

• They are earning about 10% returns on value-add projects. That's a lot less than what Independence Realty Trust (IRT) is earning.

Camden Property Trust (CPT)

• They expect 5% same property NOI growth for the apartment sector in 2023.

• They also think that there will be fewer publicly listed apartment REITs a year from now. They expect buyouts to occur. Since they are one of the largest apartment REITs, it wouldn't be surprising if they went after a smaller REIT. 

Boardwalk REIT (BEI.UN)

• They think that they still trade at a steep discount to the replacement costs of its assets even after the recent surge in their share price. They trade at around $170k a door, which is exceptional value in their opinion for their markets.

• They think that they could raise their rents by 20% today, but they intentionally only push for small rent hikes each year. This way, they can grow consistently with limited volatility and it is also a lot friendlier to the tenant. They think that small and steady wins the race. Most US REITs prefer to maximize immediate rent growth, but this then leads to more turnover, bad reviews, and a lot more volatility.

• The large loss to lease provides margin of safety and growth potential. It is a bank of future growth for them.

• They explain that cap rates should be lower in their case due to this large loss to lease.

• They think that their NAV per share of $71.35 is conservatively calculated. They trade at $58 per share today

• Their markets are the most affordable in Canada and a lot of people are now moving there, leading to rapid rent growth. Their markets enjoy faster growth but trade at higher cap rates, making them attractive for real estate investors.

• Monthly rents finally surpassed $2,000 on average in Canada. In comparison, Boardwalk communities have $1,400 monthly rents on average.

• No other REIT in Northern America retains as much free cash flow as they do. The CEO talks about Benjamin Graham and the importance of growing free cash flow to create value. They pay out only 35% of their FFO and they reinvest the rest in future growth. This makes them less dependent on capital markets. They don't need or want to raise equity. Again, small and steady wins the race.

Alexandria Real Estate (ARE)

• They have already executed LOIs for property dispositions in 2023 and explain that cap rates remain more or less stable in their sector. There is limited supply of high-quality life science buildings and so if you want to invest in this space, you just have to pay what the seller is asking to get your piece of the growth.

• There are plenty of people who are interested to buy JV interest in their properties. This allows them to raise equity and reinvest it in higher-yielding development projects.

• Increasingly many of their large tenants are also interested in buying some of the properties that they occupy because they are mission-critical to them. This mitigates any potential cap rate expansion. They are less sensitive to pricing and have ample cash.

• There's been a lot of talks about biotechs struggling to raise money but VC funding hit new all-time highs in 2022 and this capital will not be spent in a single year. It will take 3-5 years. There's been a lot of wrong information on this topic according to them. 

Gaming and Leisure Properties (GLPI)

• GLPI was a spin-off from Penn Entertainment (PENN). The CEO of GLPI was the founder of Penn. Today, he still owns a lot of GLPI and his focus is on capital preservation.

• They are not in a pressure to buy assets. Again, the focus is on capital preservation for them.

• The CEO appears to think that there are no safer assets than casinos such as those that they own. They are irreplaceable mission-critical assets to their tenants, generate a ton of money, and are not going anywhere. Leases are also cross-collateralized with master leases. They have 40-year leases with escalators and the "revenues are bullet-proof".

• There is also a lot of value in having a license in a limited license state. Real estate investors often underappreciate this about casinos.

• The buffer between rent and profit is large in this space, providing great margin of safety.

VICI Properties (VICI)

• I sense that they are interested in the real estate assets of Six Flags (SIX). I would not be surprised if they announced a major sale and leaseback deal sometime in the near future. Such a deal could be highly accretive given their current cost of capital and the high cap rates of such amusement park assets. 

• They have put a lot of effort to build a pipeline of foreign casino investments and this should yield new deals in the coming years. They just recently bought their first casino in Canada. 

• They think that their stock is priced to deliver double-digit total returns going forward. 

The rest is coming soon...

• EastGroup Properties (EGP)

• Segro (SGRO):

• STAG Industrial (STAG)

• Germany: Grand City Properties & AroundTown - Relevant to Vonovia (VNA) & DIC Asset (DIC)

• National Storage REIT (NSR)

• Hotel REITs: Apple Hospitality REIT (APLE), Hersha Hospitality (HT), Chatham Lodging (CLDT)

• National Retail Properties (NNN)

• Essential Properties Realty Trust (EPRT)

• Spirit Realty Capital (SRC)

• Realty Income (O)

• W.P Carey (WPC)

Finally, please note that this is a free article from High Yield Landlord. If you found it valuable, consider joining our service for a 2-week free trial. You'll gain immediate access to my entire REIT portfolio, real-time trade alerts, exclusive REIT CEO interviews, and much more. We are the largest and highest-rated REIT investment newsletter online, with over 2,000 paid members and more than 500 five-star reviews.

We spend 1000s of hours and over $100,000 per year researching the market for the most profitable investment opportunities and share the results with you at a tiny fraction of the cost.

Get started today - the first 2 weeks are on us:

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.