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Reggie Middleton's CRE Short List, Part 1

Reggie Middleton's picture




 

Here is the short list of REITs that I have been promising subscribers for the last week: Commercial Real Estate Shortlist 11-2009 Commercial Real Estate Shortlist 11-2009 2009-11-16 04:20:04 530.98 Kb.
I plan on releasing a full forensic report this week (providing it
passes the QA check before Friday) which will actually include property
level analysis (for Pro subscribers) of the REIT in question's entire portfolio. The "pre"short list of REITs examined are available to non-subscribers below.

Over two years ago I forecasted a land recession in this country. I
featured the work of a guest blogger whom I respect and I believe this
is a very good time to rehash what was said in Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt I and Straight Talk From the Homebuilder CFO: The Coming Land Recession, Pt II. Due to space constraints, I will actually repost these as separate articles.

For those who are just starting to follow round two of my commercial
real estate analysis, this is what has led us to this point:

japanese_land_vs_gdp.jpg

This really calls into question the usefulness of broad GDP reports in
anticipating asset value recovery after a land bubble bust. See "Who are ya gonna believe, the pundits or your lying eyes?" (for pictures), "Who are you going to believe, the pundits or your lying eyes, part 2" (for numbers and a very shaky video), and Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals? for an idea of what needs to be cleared up in this space before we move forward.

I will also be looking a little deeper into Realty Income in December.
I have found some info on their closely "guarded" real estate
portfolio, which may allow me to perform a realistic valuation. Chances
are things will not appear as rosy as management makes them out to be,
but we shall see.

 In
order to truly appreciate the Japanese comparison, one would really
needs to understand the condition of the US banking environment:

Ssubscribers only) Obsservations on Realty Income as well as inclusion of several 3rd party analysis 2009-11-16 02:31:35 384.50 Kb

Of the list of REITs analyzed below, we have:

  1. removed 4 REITs with no real estate investment (involved in
    investing primarily in mortgage backed securities, which we will pursue
    at a later date);
  2. removed 7 REITs with LTV of less than 30%
  3. and selected 11 REITs based on the leverage metrics and operational performance.

One REIT that ended up on the shortlist actually had a few significant
positives that would not show up on a Bloomberg scan. These positives
have the potential to cause it to stand out as a potential long
candidate in what I see as a maelstrom of under-performance in the REIT
sector over the medium term. It is included in the shortlist note for
subscribers (Commercial Real Estate Shortlist 11-2009 Commercial Real Estate Shortlist 11-2009 2009-11-16 04:20:04 530.98 Kb).

 

Initial list of 59 REITs with share price of $15 per share and market cap of more than $500 mn

       

Ticker

Short Name

Price

Current Market Cap

SPG US Equity

SIMON PROPERTY

68.8

19492

PSA US Equity

PUBLIC STORAGE

74.37

12820

VNO US Equity

VORNADO RLTY TST

60.5

10857

NLY US Equity

ANNALY CAPITAL M

17.16

9341

HCP US Equity

HCP INC

30.12

8828

BXP US Equity

BOSTON PROPERTIE

62.34

8639

EQR US Equity

EQUITY RESIDENTI

29.11

7975

VTR US Equity

VENTAS INC

40.22

6296

AVB US Equity

AVALONBAY COMMUN

73.28

5858

HCN US Equity

HEALTH CARE REIT

45.03

5453

FRT US Equity

FED REALTY INVS

59.22

3608

DLR US Equity

DIGITAL REALTY

45.76

3484

NHP US Equity

NATIONWIDE HLTH

32.48

3467

LRY US Equity

LIBERTY PROP

30.83

3442

AMB US Equity

AMB PROPERTY

23.39

3421

SLG US Equity

SL GREEN REALTY

41.81

3212

MAC US Equity

MACERICH CO

30.62

2901

REG US Equity

REGENCY CENTERS

35.8

2874

CLI US Equity

MACK-CALI REALTY

32.33

2533

SNH US Equity

SENIOR HOUSING

19.8

2514

HPT US Equity

HOSPITALITY PROP

20.32

2506

O US Equity

REALTY INCOME

23.8

2482

ARE US Equity

ALEXANDRIA REAL

55.21

2431

WRI US Equity

WEINGARTEN RLTY

20.09

2407

CPT US Equity

CAMDEN PROP TR

36.71

2354

ESS US Equity

ESSEX PROPERTY

77.17

2176

OFC US Equity

CORP OFFICE PROP

36.05

2091

HIW US Equity

HIGHWOODS PROP

29.3

2076

TCO US Equity

TAUBMAN CENTERS

33.26

1767

NNN US Equity

NATIONAL RETAIL

21.07

1701

WRE US Equity

WASH REAL ESTATE

26.9

1567

BRE US Equity

BRE PROPERTIES

28.68

1515

SKT US Equity

TANGER FACTORY

37.05

1492

ALX US Equity

ALEXANDER'S INC

285.48

1458

ELS US Equity

EQUITY LIFESTYLE

46.21

1401

ACC US Equity

AMERICAN CAMPUS

26.71

1394

EQY US Equity

EQUITY ONE INC

15.77

1361

HME US Equity

HOME PROPERTIES

39.86

1317

OHI US Equity

OMEGA HEALTHCARE

15.42

1284

HR US Equity

HEALTHCARE RLTY

20.95

1244

MAA US Equity

MID-AMERICA APAR

43.57

1230

LHO US Equity

LASALLE HOTEL PR

19.36

1230

PSB US Equity

PS BUSINESS PARK

49.73

1210

EPR US Equity

ENTERTAINMENT PR

34.15

1194

KRC US Equity

KILROY REALTY

26.3

1135

PCH US Equity

POTLATCH CORP

28.31

1126

HTS US Equity

HATTERAS FINANCI

27.47

990

STWD US Equity

STARWOOD PROPERT

20.23

984

EGP US Equity

EASTGROUP PROP

37.21

966

SSS US Equity

SOVRAN SELF STOR

30.68

842

NHI US Equity

NATL HEALTH INV

30.18

833

PPS US Equity

POST PROPERTIES

16.76

812

DFT US Equity

DUPONT FABROS TE

15.46

645

AKR US Equity

ACADIA REALTY

15.88

630

GTY US Equity

GETTY REALTY

24.71

612

BFS US Equity

SAUL CENTERS INC

31.67

567

LTC US Equity

LTC PROPERTIES

23.5

545

AGNC US Equity

AMERICAN CAPITAL

28.14

544

GOV US Equity

GOVERNMENT PROPE

23.74

509

 

 

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Mon, 11/16/2009 - 20:54 | 132559 Anonymous
Anonymous's picture

All IYR prices are going up since nearly all entities now have access to refinance their worthless bonds with the FED's help. The ability to refinance allows the equity prices to move up. Liquidity is now being translated into credit to refin in both the residential and commerical real estate markets. Higher vacancies and lower rents (fundamental analysis) will not translate into lower equity values in my opinion

Mon, 11/16/2009 - 21:30 | 132607 Reggie Middleton
Reggie Middleton's picture

Higher vacancies and lower rents (fundamental analysis) will not translate into lower equity values in my opinion

It really is a shame if you truly believe that. I know there are many others with that opinion. With enough "higher vacancies and sufficiently lower rents" you will achieve bankruptcy. Will that translate into lower equity values?

Mon, 11/16/2009 - 21:43 | 132623 Anonymous
Anonymous's picture

Dear Sir,

I have posted once since I began reading ZH about 2 weeks after it launched. This is my second post.

First, the information and the style in which you provide it is commendable. Please continue.

Second, all that matters is cash flow. The problem is that a generation of individuals has been raised believing differently. And, of course, they should believe differntly given what has transpired. But, I am sure that The Market will out in the end and cash flows will matter once again.

Regards,

RRR

Mon, 11/16/2009 - 19:06 | 132455 Cheeky Bastard
Cheeky Bastard's picture

Reggie, i appreciate your post, but it REALLY is not a smart idea to give this lists on ZH because a) it makes you look like you are pimping your newsletter b) can have negative consequences on ZH if people trade based on your, not so subtle, recommendations       c) both ... i dont know have you seen the backlash tyler was given by some readers when they only INTERPRETED his posts a recommendations ... again i really appreciate what you do here, but you need to tone it down a little bit ...

Mon, 11/16/2009 - 21:27 | 132603 Reggie Middleton
Reggie Middleton's picture

I appreciate the way you have approached me concerning this, but:

a) I am not giving advice or recommendations

b) I have not released the shortlist to the public, I announced it

c) The list of companies above are a list of REITs from which the short list was derived. As a matter of fact, in the list above, I stated that there was a rather strong REIT, several non-real asset REITs that do not apply, etc. etc. There were absolutely no recommendations since out of 59 REITs I didn't bother to identify which was which. It would be a stretch to attempt to find which was which unless you rolled your sleeve up and actually did the work yourself, which is a good thing - but would not have anything to do with my recommnending such.

If you go back and read the post, you should see it as I have just laid it out. I didn't edit the post or change the words, either. Often, people expect to see or read something, hence they actually read what they expect to find vs. what is actually there. Buy/sell recos appear to be allowed over the web via newsletter, but I have stated often, and will state again that that is NOT what I do. I supply research and opinion, not buy and sell recommendations.

Again, although I don't concur with how you read the post I do appreciate the non-confrontation and professional manner in whcih you communicate your perspective.

Mon, 11/16/2009 - 21:44 | 132626 Green Sharts
Green Sharts's picture

Yeah, it's perfectly understandable that something with the headline "Reggie Middleton's CRE Short List" wouldn't include your short list.

"I have not released the shortlist to the public, I announced it."

Why do you think ZH readers who haven't bought one of your hundreds of sales pitches to this point would care that you've developed a "shortlist"?

Mon, 11/16/2009 - 19:56 | 132507 Howard_Beale
Howard_Beale's picture

I agree CB. I might add the short list IS the SRS and just buy that little bugger for $8.50 and you get the upside, minimal downside (8.5 to zero isn't much and you can always stop it out), and investment advice on ZH does have backlashes (whether advised or not). By the way CB, we are having midterms next week on previous Princeton Economics Department Heads. Hope you have your crib sheet. :)

Mon, 11/16/2009 - 21:17 | 132581 Green Sharts
Green Sharts's picture

The inverse ETFs, particularly the 2X and 3X ones, are such horrible investment vehicles that even when you're right on the direction of the index you'll usually end up losing money.  On 2/1/07, the IYR (Dow Jones Real Estate) was $81.75, today it closed at $44.17, a loss of 46% not including dividends.  Being short IYR would have netted a nice profit provided you weren't too leveraged and had the stomach to ride out the volatility.  But shares of SRS, the 2X short Dow Jones Real Estate, were $62.07 on 2/1/07 and $8.53 at today's close for a loss of over 86%.

If IYR went down 100% tomorrow to 0 and the SRS achieved its daily mission of 2X inverse the index, SRS would close at $25.59 and the investor who bought it on 2/1/07 would still have a loss of over 58%.

Mon, 11/16/2009 - 17:24 | 132334 Green Sharts
Green Sharts's picture

Here is the short list of REITs that I have been promising subscribers for the last week:  Commercial Real Estate Shortlist 11-2009 2009-11-16 04:20:04 530.98 Kb.

I'd guess your subscribers go to your website looking for your subscription content.  Why are links to documents that require a subscription posted at ZH?

Mon, 11/16/2009 - 12:36 | 131849 Reggie Middleton
Reggie Middleton's picture

Which is why they weren't shortlisted.

Mon, 11/16/2009 - 11:59 | 131806 mrhonkytonk1948
mrhonkytonk1948's picture

Some of these are mortgage REITs which may not belong on your initial list, especially if they invest in agency-backed MBS.  Different animal entirely from CRE!

Mon, 11/16/2009 - 11:59 | 131804 mrhonkytonk1948
mrhonkytonk1948's picture

Some of these are mortgage REITs which may not belong on your initial list, especially if they invest in agency-backed MBS.  Different animal entirely from CRE!

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