Investment Philosophy and Context
Real estate is an uncorrelated, inflation-linked asset class that complements a multimanager portfolio offering diversification, income with growth, and the potential for risk reduction and return enhancement. The strategy utilizes publicly traded real estate investment trusts (REITs) and real estate related entities based primarily in North America.
We believe public REITs are superior vehicles for investing in real estate due to their liquidity, transparency, and total return characteristics. Investing in public securities enhances our ability to diversify by geography, sector, strategy, property, and tenant while maintaining portfolio liquidity.
Four primary tenets have formed the management of our REIT strategy since inception: (1) experience; our research/portfolio management team has over 45 years combined industry experience, (2) specialization with an emphasis on transparency; our strategy uses only liquid public equity securities (no mortgage REITs, no blind pool structures), (3) depth of knowledge of every portfolio holding; extensive modeling of every security that includes nationwide property tours and meetings with management, (4) communication; we publish monthly what we are thinking and how what we are seeing impacts portfolio strategy.
The strategy does not use leverage, derivatives, or shortselling. Portfolios are constructed with 2535 securities having an average annual turnover of 30%. REIT property types include apartments, regional malls, shopping centers, lodging, office, industrial, selfstorage, data centers/tech, and a variety of health care related facilities. All portfolio companies are classified into one of three categories, and portfolios maintain allocations to each within the following risk categories:
- Core (40% to 70%): Companies with superior balance sheets, established track records, and moderate growth
- Value Add (20% to 50%): Companies with moderate leverage, established track records, and high growth potential, both internal and
- Opportunistic (0% to 25%): Companies with high leverage, unproven track records, and high growth potential, both internal and external.
Our REIT research and portfolio management team is comprised of three individuals each having assigned sector industry and company
coverage. Analystspecific expertise within industries and companies, combined with an emphasis on primary research, critical thought,
collegial debate, and sharing of knowledge drives idea generation.
The process begins with a topdown analysis of property types and geographic submarkets which helps to drive the bottomup research that forms a buy and sell price for each security in the universe. The approach includes estimates of net asset value, earnings (funds from operations’ for REITs), balance sheet analyses, and company specific ratio comparisons by property type, geography, and peer group.
Qualitative factors are also evaluated, including property visits nationwide, REIT management meetings, and quality grade.
The benchmark is the MSCI US REIT Index. Constructed portfolios may significantly overweight or underweight sectors commonly found in the REIT benchmarks. The combination of our research efforts and proven investment approach helps to avoid being labeled a closet indexer.
The strategy is available to investors through separately managed account, unified managed account, or mutual fund structures.