Fairfax, VA-based KRA Capital Management, established in 1997 and with over $436 million in equity assets under management at the time of their latest Q4 13-F filing last week, specializes in Institutional Real Estate Securities Management. They manage separate account portfolios of publicly traded real estate securities, including equity real estate investment trusts (REITs) and real estate operating companies (REOCs). Their investment strategy is based on total return, derived from dividends and price appreciation of their holdings.
The following are the real estate group companies that they are most bullish about:
BRE Properties Inc. (BRE): BRE is a REIT that develops, acquires and manages multi-family apartment communities in the western U.S. KRA opened a new $5.2 million position in the company, its second largest buy in Q4. BRE trades at a forward price to funds from operations (P/FFO) ratio of 20-21 compared to the average of 17.8 for its large-blend peers in the REIT Equity Trust group. Also, it has a dividend yield of 2.9% compared to the 3.4% average for the group. P/FFO is a more appropriate measure of value, commonly used in the REIT group, as it adds back in depreciation expenses that are typically taken out in calculating net income and earnings.
This is because real estate, unlike fixed PP&E costs in the case of other groups, rarely loses value over the long-term, and in fact, most often appreciates over the long-term. So, in this case spreading out the investment cost in PP&E (in this case, mostly real estate) charges over the long-term makes little sense as is done in calculating net income; hence, depreciation is added back in and the resulting FFO is a more appropriate measure of the cash flows than is earnings.
Simon Property Group Inc. (SPG): SPG is a REIT that owns, operates and develops regional malls, outlets and shopping centers. At $34.7 million, this was KRA's largest position at the end of Q4. SPG trades at 17 forward P/FFO compared to the average of 13.5 for its large-growth peers in the REIT Equity Trust group. Also, it has a dividend yield of 2.8% compared to the 5.5% average for the group.
The following is a real estate group company that they are most bearish about:
DDR Corp. (DDR): DDR is a REIT that acquires, develops, leases and manages shopping centers, mini-malls, and lifestyle centers across the U.S. KRA cut $1.5 million in Q4 from its $4.2 million prior quarter position in the company. DDR trades at a current P/FFO of 13.4 compared to the 9.7 average for its mid-value peers in the REIT Equity Trust group. Also, it has a dividend yield of 3.6% compared to the 8.4% average for its peers.
Other major real estate company holdings in KRA's portfolio include the following:
Equity Residential (EQR), a REIT engaged in acquiring, developing, owning and managing multi-family properties located in the U.S. At $13.1 million, after a minor $0.6 million cut in Q4, it is among KRA's top five holdings.
Prologis Inc. (PLD), a REIT that acquires, develops and operates industrial properties in North America, Europe and Asia. At $9.7 million, after a minor $0.5 million cut in Q4, it is among KRA's top holdings.
Host Hotels & Resorts (HST), a REIT that owns full-service upper-scale and luxury hotels in the U.S. and abroad. At $8.8 million, including $0.4 million cut in Q4, it is among KRA's top holdings.
Ventas Inc. (VTR), a REIT that finances, owns, and leases senior housing and healthcare related properties in the U.S. KRA holds $6.7 million, including a minor $0.3 million cut in Q4.
Boston Properties Inc. (BXP), a REIT that owns and develops a diverse portfolio of hotel, office and retail properties in four core markets, namely Boston, midtown Manhattan, Washington D.C., and San Francisco. At $14.5 million, including $0.4 million added in Q4, this is KRA's second largest position in its portfolio.
Note to Table: The companies selected to be included in both the Top Buys and Sells and Top Holdings categories in the Table were picked on both an absolute basis, i.e. the highest dollar amounts of buys and/or sells, as well as those amounts relative to their market-cap. That way, the list is not biased towards the largest companies in the group.
Credit: Historical fundamentals including operating metrics and stock ownership information were derived using SEC filings data, I-Metrix® by Edgar Online®, Zacks Investment Research, Thomson Reuters and Briefing.com. The information and data is believed to be accurate, but no guarantees or representations are made.
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