One of the hedge fund world’s heavyweights, William Ackman, just unleashed a very detailed slide show presentation on REIT investments this week at the Value Investing Congress.
If you are not familiar with them, REITs – real estate investment trusts – are income-producing real estate investments that trade like stocks. Many REITs invest in apartment developments, office buildings or shopping malls that collect rents from tenants.
REITs are required to distribute at least 90% of its taxable income as dividends to shareholders. As a result, they tend to generate a consistent income stream. They produced average annual income of 8.3% from 1972 to 2010.
Ackman is a long-time holder of General Growth Properties (GGP), a large real estate investment trust, and a company that he would like to see sold to an even larger one, Simon Property Group (SPG).
In his presentation, Ackman detailed why he thinks GGP is a strong standalone company. He also explained why he thinks it has high recurring revenue, inflation-protection characteristics, geographic diversity, and high barriers to entry.
There are risks to REIT investing, of course. It’s a capital intensive business, so REITs tend to accumulate debt. They also can be volatile — one reason that Ralph Block, who wrote a book on REITs, argues that it’s better to hold them for the long-term.
Still, they can be a way to play a recovery in the housing market without having to actually buy property and deal with the hassle of property upkeep and calls from tenants.
Covestor offers several models that focus on REITS, including the REITs model run by Fletcher Wealth. It seeks to invest in REITs that offer a discount to fair value and have stable dividend payments.
There also is the Stable High Yield model, run by John Gerard Lewis. It invests in bond ETFs as well as REITs. Read this for more background about how it seeks to avoid the ups and downs of the overall stock market while still providing a historical stock market-like return.
Certain of the information contained in this presentation is based upon forward-looking statements, information and opinions, including descriptions of anticipated market changes and expectations of future activity. Covestor believes that such statements, information, and opinions are based upon reasonable estimates and assumptions. However, forward-looking statements, information and opinions are inherently uncertain and actual events or results may differ materially from those reflected in the forward-looking statements. Therefore, undue reliance should not be placed on such forward-looking statements, information and opinions.
The investments discussed are held in client accounts as of September 30, 2012. These investments may or may not be currently held in client accounts.The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or that investment decisions we make in the future will be profitable.
