What is Reasonably Priced

[Every Banana Counts]

I’m heavy in cash now, but if I had to use it I would buy FB, BRK, CVS, MO, MKL, GOOG. I think FB and BRK are the most attractive of the bunch.

[BG2008]

Billy Boy Ackman just bought more of Howard Hughes Corp

 

I don't think that is necessarily true.  I think what you are seeing is rebalancing between funds and OTC put assignment.

 

he got more shares put to him. he now owns 25% of the company, all in simple long stock form (no options/swaps).

 

“On January 6, 2021, the Reporting Persons restructured and rebalanced its investment in the Issuer,” according to the filing

On January 6, Pershing acquired shares via the obligation to purchase common shares pursuant to previously written and reported put options which expired on Jan. 6, the unwind of 3.5 million previously written and reported put options expiring in 2021, and the purchase of shares of common ctock, according to an amended 13D filing

The previous 13D/A filed on June 5, 2020 showing Pershing’s 19.9% stock ownership also referenced 32.5% beneficial ownership, an amount reflecting a case where all put options were exercised

 

Thank you guys for keeping me straight!!

[Castanza]

Has anyone looked at European REITs? Some of these seem really cheap still. Full disclosure, I am not familiar with tax implications of these as a US investor so I will defer to others on that.

 

Example: GFC Gecina SA (Paris proper REIT) Quick Glance

 

9.3B mkt cap

52wh: 178.00

Current: 125.00

Book 0.7

P/E 8.7

ROE 8.5%

D/E 1.6

EPSG 43%

 

 

 

 

[thepupil]

Gecina uses <4 caps for its NAV(IFRS so book = mgt NAV, kind of), at least when i looked at it briefly. While this may be the market for Paris office and apartments, when you have low leverage and extremely low cap rates, a 30% NAV discount isn’t necessarily exciting. Its EV is down 13% sinc e 12/2019 and most leverage is corporate level IIRC (that should be fact checked), whereas in contrast something like VNO’s EV is down 30%, has mostly secured/non recourse debt, and started the year at a bigger NAV discount (though NAV has fallen more)

 

I’m not dismissing the idea. I spent <1hour on it 6+ months ago.

[Castanza]

Gecina uses <4 caps for its NAV(IFRS so book = mgt NAV, kind of), at least when i looked at it briefly. While this may be the market for Paris office and apartments, when you have low leverage and extremely low cap rates, a 30% NAV discount isn’t necessarily exciting. Its EV is down 13% sinc e 12/2019 and most leverage is corporate level IIRC (that should be fact checked), whereas in contrast something like VNO’s EV is down 30%, has mostly secured/non recourse debt, and started the year at a bigger NAV discount (though NAV has fallen more)

 

I’m not dismissing the idea. I spent <1hour on it 6+ months ago.

 

By all means dismiss it haha. I was just poking around in some random ideas to see what else is out there. Not a real estate expert by any means. I was hoping you would comment on this actually  :P.

 

Thanks for the insights

[thepupil]

see slide 38, Paris CBD is marked at 3.1% cap rate and Paris Resi 3.2%.

 

I'm not saying that's "wrong" given where rates/vacancy/whatever is, just  saying that when you're buying 30% LTV 3 cap stuff at 70% of NAV, you're paying a 4 cap.

 

One thing to be mindful of is lease structures vary across countries so all cap rates/ NOI’s are not equal. British office leases, I believe, put more of the cost burden on the tenant, and kind of resemble NNN leases. HK leases whenever I’ve looked seem much shorter and HK buildings have the steamiest cap rates in their NAVs. I haven’t dug into French/Gecina. The NYC model is mostly “modified gross” where certain costs are passed through to tenant.m, but you have some gems like ALX Bloomberg tower where more like NNN. ARE and BXP have a fair bit of pretty long duration NNN like structures, one of the reasons ARE trades so dear.

 

https://www.gecina.fr/sites/default/files/2020-07/gecina_-_earnings_at_june_30_2020_-_presentation.pdf

[mattee2264]

 

KKR and BAM invested in Great Portland Estates and British Land respectively in the autumn. I cannot remember the metrics off hand but they are around 70% NAV.

[rosemontseneca]

I have a small low conviction position in Befimmo, which is a Belgian office REIT.  I show it trading at a ~7 cap rate, and the tenant base is 60% public sector.  No catalyst other than hopefully re-rating post COVID.

 

Used to own British Land, but it sold it post vaccine bounce.

 

I tend to like the foreign property stocks because you don't have the same local tax/regulatory arbitrage that you have in the U.S. that is driving the "migration from the coasts" theme.  Whereas everyone is ready to proclaim the death of NYC/SF/LA, London will always be the leading city in the UK, Paris for France, and so forth 

[Castanza]

I have a small low conviction position in Befimmo, which is a Belgian office REIT.  I show it trading at a ~7 cap rate, and the tenant base is 60% public sector.  No catalyst other than hopefully re-rating post COVID.

 

Used to own British Land, but it sold it post vaccine bounce.

 

I tend to like the foreign property stocks because you don't have the same local tax/regulatory arbitrage that you have in the U.S. that is driving the "migration from the coasts" theme.  Whereas everyone is ready to proclaim the death of NYC/SF/LA, London will always be the leading city in the UK, Paris for France, and so forth

 

To your last point, that is what was leading me to dig in a bit. Thanks for sharing

[thepupil]

if you really want to go crazy all the HK property stocks are "cheap", though my only exposure is ownership of Hong Kong Land at an effective NAV multiple of like 0.2x via Jardine Strategic. I'm sure all the other HK landlords are just as cheap (CK Asset may actually be interesting given it has very low leverage and owns things like british pubs and aircraft leasing and infrastructure so not just ?HK property, not reaaaaly my bag though).

 

the two Superman stocks (1 HK and CK Asset) are like a hodge podge of everything hated in the world: mainland china, hong kong, UK, real estate, energy, infrastructure (not hated as much), etc. 

 

Mitsubishi Estates owns the best CBD real estate in the world in my opinion (Maranouchi District, near the palace in Tokyo http://marunouchi.mec.co.jp/en/photo/), but it's a giant Japanese company w/ all that implies. With dividends reinvested, it has returned -0.7% since 1988  :o

[thepupil]

I have a small low conviction position in Befimmo, which is a Belgian office REIT.  I show it trading at a ~7 cap rate, and the tenant base is 60% public sector.  No catalyst other than hopefully re-rating post COVID.

 

Used to own British Land, but it sold it post vaccine bounce.

 

I tend to like the foreign property stocks because you don't have the same local tax/regulatory arbitrage that you have in the U.S. that is driving the "migration from the coasts" theme.  Whereas everyone is ready to proclaim the death of NYC/SF/LA, London will always be the leading city in the UK, Paris for France, and so forth

 

At first glance, I think this is a nice idea. Just to confirm your 7% cap rate math, is it something like this

 

1.2 billion debt

0.98 billion equity

2.188B EV

 

Existing Income Portfolio NOI = 122 million

 

122 / 2188 = 5.4%cap rate using only existing estate

 

w/ corp overhead of 14mm/year

 

108 / 2188 = 4.9% cap rate w/ corp overhead.

 

but there's a 394mm development pipeline that's 80% pre-let which is non-income producing. Given the degree to which this is pre-let, we may assume that they'll at least generate their cost on this investment, so if we back that out from the EV

 

2188-394 = 1794, which gives you a 6.0%-6.8% cap rate (depending on whether you count overhead). Alternatively, if you assume they'll make a 6.0% yield on cost on the development, that will get you into a mid-high 6% cap rate as the development NOI comes in line over the next 3 years.

 

So you're buying a portfolio of 93% occupied 7-8 year weighted average lease office in mostly Brussels and Flanders at a 5-7 cap (depending on what you want to count/not count). The debt cost 2% and is 90%+ fixed rate so you have close to an 8.5% yield to the equity, much of which is returned to you in the form of the 7% dividend. On the risk side, leverage is reasonable at 40% of management asset value and 55% of the mtm enterprise value. 

 

this is in a NIRP environment.

 

seems pretty reasonable to me.

 

The belgian 10 year yields -0.36% and the 2 year yields -0.7%, so there's negative hedging costs (though I probably wouldn't hedge since I don't have a lot of euro exposure and would just take on the currency risk.

[rosemontseneca]

I got to a 7 cap by backing out 487mm for the development pipeline.  That's what they use in their NAV buildup on page 35 of their latest investor deck, but I don't know if that reflects cost or some write-up to cost.  If the latter, it's probably an aggressive assumption.

 

I also go back and forth on the overhead question, but for purposes of my math it's excluded.

[writser]

Thanks for sharing that, Befimmo looks like a reasonable REIT indeed at first glance.

[no_free_lunch]

It's even tougher today. I am debating selling my REITs, they are up 30% since January plus dividend. Defense and tobacco is still reasonable.  Other than that there is VZ and T, hard to get rich on them but they seem safe and could do 10% perhaps.  

 

Looking at industrial sector. BASF seems interesting but not without challenges and perhaps less secure than the other names mentioned in this thread.  I am only halfway through my DD on them.

 

If you know anything else that is safe and cheap, please let us know.  Bonus points for being boring. 

Edited June 12, 2021 by no_free_lunch

[thepupil]

On 1/9/2021 at 10:44 AM, thepupil said:

FMBL trades 0.77x book, 11-12x earnings, and has 2x+ the amount of capital to be well capitalized, and has close to $10B $8B of deposits across just 25 branches, 40 ish % of which are non interest bearing. The attraction of FMBL is a function of how much one values safety and over capitalization of that excess capital will never be returned to you. I value it because even if never returned it makes the earnings stream safer.

 

Staying with the theme of illiquid overcapitalized SoCal family go’s, LAACZ seems reasonable to me. Whether you think PMV is $3K/share or $4K plus, $2500/ share = 4% yield growing at mid single digits with an option on some kind of change.

 

Even hair cutting Apple, Berkshire continues to be very reasonable priced.

 

In a world where SPACs trade at 20% premium, EQC at 93-100 cents of NAV offers reasonably priced optionality.

 

BSM and DMLP offer close to 10% yields with direct exposure to hydrocarbon price/volume with low to no leverage. Can still be bad investments though if production collapses.

 

I actually think GOOG and FB, even MSFT are not unreasonably priced. Not cheap, certainly some tax  and regulatory risk, but, not crazy to me.

 

Multi family REITs (including non urban) are at 5 caps and can borrow at 1-3% and have low leverage.

 

What I don’t understand about the 50%+ cash crowd is I think there are plenty of securities out there that are highly likely to preserve amd grow purchasing power over time out there. I don’t think any of the above will CAGR at 15% for the next 10 years, but I’d be surprised at less than say 6% (unless say EQC doesn’t find a deal).

 

 

 

 

 

Not a bad 6 months for this group of overcapitalized high-ish quality securities. I must say that I'm having trouble getting too excited about stuff lately. Not going to  cash, and been buying large cap tech / the chinese tech holco's/proxies (Prosus/Softbank etc.), but don't feel quite as chipper about the portfolio right now. 

 

FMBL:     +20%

LAACZ:  +18.5%

BRK/B: +22%

EQC:   -1.6% WEAK!

BSM / DMLP: +35%, +26%

GOOG, FB, MSFT: +33%, +23%,+15.5%

EQR/AVB/CPT/ESS/MAA: +29-32% 

 

SPY: +10.9%

VT: + 9%

 

 

 

 

 

Edited June 13, 2021 by thepupil

[Gregmal]

A lot of REITs are still quite cheap. There's still a ton of covid related spread that needs to compress. Whether its MF or triple net, if the 10 year is 1.5%, those should be priced at 150-250 bps over that(in terms of best of breed companies/quality assets). Which is basically where the private market is, but the public markets have a good ways to go. Obviously this refers to top notch stuff. Look at something like Realty Income(which I dont own but only because I see better returns elsewhere)...the fact this is trading with a 4% yield(~80% payout ratio pre VEREIT synergies) despite growing NOI and raising dividend during 2020 is stupid. Just because "things have gone up a lot" doesnt mean they're overvalued. One day the world will wake up to the fact that bonds are useless, S&P is at 45x, and yet, you can get 5-10% annual returns in real estate without trying. If they dont wake up, well I guess thats even better for some of us. 

[no_free_lunch]

I took positions in BASF, BAYER, and Stella Jones. All based on postings on the site.  They are all sitting with PEs below 12 and seem to be ignoring the favorable economic conditions.

 

I am still on the fence with the REITs. If you look at $AVB it is trading around 25x ffo for the upcoming year and thry will probably boost ffo by double digits in 22 once covid is removed. Not crazy expensive I suppose.  However they are now more at risk from an interest rate boost. 

[rosemontseneca]

Foreign holdcos (Exor, CK Hutchison, Jardine Matheson), foreign telecom (TIGO, TNET:BE, VIV), some energy (SU, CHK)