Seeking Alpha
View as an RSS Feed

Brad Case  

View Brad Case's Comments BY TICKER:
Latest  |  Highest rated
  • Simon Property's Excellent Record of Achievement [View article]
    Mosaic theory is a way of describing how equity analysts come to their opinions as to the value of a particular company's stock. Here's how the CFA Institute (that's Chartered Financial Analyst) describes it: "A financial analyst gathers and interprets large quantities of information from many sources. ... (This) must go beyond the information mandated by the reporting requirements of the securities laws and should include specific business information about items used to guide a company's future growth, such as new products, capital projects, and the competitive environment. ... Analysts are in the business of formulating opinions and insights--not obvious to the general investing public--concerning the attractiveness of particular securities."

    I referred to the mosaic for two reasons. The first is that investors, like analysts, should form their opinions on the basis of all available information, including equity analysts' opinions as well as their own analysis of the company's required financial reports--that's why I pointed to the interview with Green Street Advisors in connection with a discussion about this particular company. The second is that the opinions formed by Green Street Advisors have resulted in extraordinarily good investment returns--suggesting that perhaps their analysis, which goes beyond merely the company's financial statements--is of higher quality.

    Now, twice you've accused me of trying to pump up a stock; once you've said Green Street is doing the same; once you've said that they're biased; once you've said their opinion is garbage; and once you've said (falsely) that they own the stock they're analyzing. Maybe you want to withdraw some of those accusations?
    Dec 3, 2010. 10:02 AM | 2 Likes Like |Link to Comment
  • PricewaterhouseCoopers Report: REITs a 'Best Bet' for 2011 [View article]
    K Smith,
    Here's what I said: (1) PricewaterhouseCoopers has published a report, from which I quoted; and (2) I agree with it.
    I understand that you disagree with the conclusions that PwC reached based on its discussions with more than 875 people knowledgeable about real estate investing, and I understand that you disagree with me. What I don't understand is why your opinion is more valuable than mine, PwC's, and those of the 875 people they talked to.
    You pointed out that vacancy rates are high--which nobody disputes. I pointed out that the weakness in real estate operating fundamentals (plus the liquidity crisis) are why REIT returns went down roughly 70%--but REIT investors are looking forward to improved fundamentals and earnings growth. It's as simple as that. You think the improvement in fundamentals will be weak, so you don't think REIT investing makes sense. PwC and I disagree with you. Again, it's as simple as that.
    Dec 3, 2010. 09:36 AM | 1 Like Like |Link to Comment
  • Simon Property's Excellent Record of Achievement [View article]
    I guess I'm at a loss, MKTEFF. This is a blog about a specific company; I had just run across an interview in which the two leaders of what is possibly the most highly regarded equity analyst shop in that company's industry specifically recommend it; all I did was quote from that interview. I guess if their comments had been negative, I could have been accused of trying to jam down their stock so I could profit from a short position (which I don't have, just as I don't have a long position). Your position is that no information should be posted unless it's the opinion of someone who has personally analyzed the company's financials; my position is that a mosaic takes information from all sources, whether it's the company's financials or equity analysts' opinions.
    Dec 2, 2010. 01:48 PM | 1 Like Like |Link to Comment
  • REITS With the Right Stuff [View article]
    Actually, I think both of them are formulas for success, (that sounds like a parent being asked which of his two children he likes better--but it's true), and I think your observation points out why: malls appeal to one set of customers, neighborhood centers to another. There are two fabulous malls (one owned by MAC, the other by GGP) very near where I live, and I rarely visit either of them--I use the neighborhood centers (owned in my area by companies like FRT, REG, and BFS) instead. But my otherwise very similar neighbor much prefers the malls, and shops at them all the time.

    The two types of retail properties require different skills in terms of property management, acquisitions & dispositions, and development. Even though I don't shop often at the malls, I can see they're extremely well run for their type of shopper. But I've also seen other malls, and other neighborhood centers, that clearly are not well run--and that's why I think both types of REITs are likely to keep increasing earnings, at the expense of other real estate investment managers.
    Dec 2, 2010. 09:18 AM | Likes Like |Link to Comment
  • REITS With the Right Stuff [View article]
    Those numbers were correct through October, dkn. I just updated them through November: the S&P 500 gained 6.7% per year in share price appreciation on average over the last 20 years, plus 2.2% in dividend income, so total return averaged 8.9% per year. For U.S. publicly traded REITs it was 5.1% per year in share price appreciation, 6.8% in dividend income, and 11.9% in total return.

    As you may know, part of the reason that REIT income is so high (bond-like) is that they're required to distribute at least 90% of their taxable income, and most distribute 100% if not more. What's not generally known is that, according to research by academic economists, that requirement may actually increase their TOTAL returns. The academic research suggests that the payout requirement imposes a discipline that forces REIT executives to make better investment decisions, whereas non-REIT companies that don't have to pay out their earnings have a (slight) tendency to fritter them away.
    Dec 1, 2010. 02:01 PM | Likes Like |Link to Comment
  • REITS With the Right Stuff [View article]
    Regarding health care REITs, CNBC yesterday broadcast a report on them including an interview with Debra Cafaro, CEO of Ventas. It's at
    Dec 1, 2010. 01:06 PM | Likes Like |Link to Comment
  • REITS With the Right Stuff [View article]
    I'll double-check, but I'm pretty sure my figures are correct. The S&P 500 returned zero over the last 10 years, but the 1990s was a good decade for stocks, so averaging 7% over the last two decades is not out of line.
    Nov 30, 2010. 10:27 PM | Likes Like |Link to Comment
  • REITS With the Right Stuff [View article]
    I don't think you're making a mistake, dkn. REITs are about the only asset class where actively managed funds seem to outperform index funds after fees, but even in REITs the evidence isn't very strong. (I have some active and some index funds in REITs, but mostly I'm an index advocate.) I actually think domestic REITs will do very well, but it makes a lot of sense to have international REITs. You can generally expect higher volatility in international REITs (especially Asian), and capital markets theory suggests that you should get higher returns to compensate for it.
    Nov 30, 2010. 10:25 PM | Likes Like |Link to Comment
  • REITS With the Right Stuff [View article]
    One factor I think is underappreciated in real estate investing--definitely in mall REITs, but more generally as well--is the potential for operating improvements that can help keep occupancy up without sacrificing rents. That's especially important in a downturn, but it's important even when the real estate market is roaring. I believe that publicly traded REITs are better at those operating improvements, and I think that's part of the reason that their returns are stronger than other real estate investors in general. It's not just a matter of putting up a "space for lease" sign and waiting for tenants to show up.

    For example, in malls it makes a big difference which stores you put next to or across from one another, because correct store placement can prompt shoppers to spend more on impulse purchases--which often means something they fully intended to buy, but were expecting to buy at a different place until they saw it at the mall as they walked from one store to another. It's no secret that store placement is important, but I suspect it's underappreciated because many investors aren't aware of how difficult it is and how much difference it can make.
    Nov 30, 2010. 02:26 PM | 1 Like Like |Link to Comment
  • REITS With the Right Stuff [View article]
    Sorry Davidbdc, the title "REITs With the Right Stuff" is a quote from the Barron's article. And, since Green Street Advisors was talking about certain sectors (including hotels) as having especially strong NOI growth projections, I just listed all of the companies in each of those sectors. I don't intend to imply that each of the companies listed is equally good, just that they're in a sector that Green Street thinks has especially good prospects.

    And I do agree with you on the importance of shareholder-friendly management. Academic research seems to show that shareholder-friendly governance results in better risk-adjusted returns.

    Thanks for your comments.
    Nov 30, 2010. 02:18 PM | Likes Like |Link to Comment
  • REITS With the Right Stuff [View article]
    It seems to me, TxWoodWorker, that the aging of the population is going to result in a sustained increase in demand for health care related real estate, which is of course good news for health care REITs. But that's not the whole story: each company has to have a competitive edge in putting together and managing a portfolio of health care properties--and, if they do have a competitive edge, then they can beat out other health care property owners.

    In general, publicly traded REITs (not just those in health care) seem to be better at real estate investment and property management than other real estate investment managers. Put together that competitive edge and the long-term increase in the aging population, and maybe that explains why health-care REIT returns have been especially good, even compared to other REITs. The average return on publicly traded health care REITs since the end of 1993 has been 13.51% per year, compared to 10.30% for all equity REITs.
    Nov 30, 2010. 11:13 AM | Likes Like |Link to Comment
  • Simon Property's Excellent Record of Achievement [View article]
    Sorry, MKTEFF, I haven't looked at the financials and done my own analysis; my purpose was simply to add to the conversation by pointing out what one particular set of equity analysts is saying. I'm prohibited from investing in specific REITs, and I'm not an investment advisor either, so there's not much purpose in my analyzing any individual company closely. My research is on the publicly traded REIT industry as a whole, and on real estate investing generally; the best I can do on individual companies is to bring other information to the attention of people who are investing in them.

    As to your point about a rosy scenario, one of the most important points that I make is that the returns on publicly traded REITs lead conditions in the real estate market (property values, occupancy/vacancy rates, effective rents, etc.) by an average of around 1 1/2 years--generally even longer at the bottom of the market. Because of that, at market turning points it's not unusual to see a disconnect between the prospective returns to REIT investors and the news about operating fundamentals. In early 2007, REIT investors were selling their stock because they expected future earnings to go down, long before fundamentals actually peaked. Conversely, in the current market REIT investors are buying stock because they expect future earnings to go up. That's why REIT returns are currently very strong even though fundamentals are close to the weakest they've been in 20 years.

    It's important for investors to understand that general market dynamic, because if they wait until property values have already started to increase before investing in publicly traded REITs then they've missed a significant piece of the upturn. That doesn't say anything about any individual company, just about the industry as a whole.
    Nov 30, 2010. 11:03 AM | Likes Like |Link to Comment
  • Simon Property's Excellent Record of Achievement [View article]
    You're wrong, MKTEFF. From January 1993 through October 2010, Green Street's "Buy" recommendations have returned +25% per year on average, while their "Sell" recommendations have returned -2% per year. Furthermore, Green Street employees are prohibited from owning shares of any company in their coverage universe. If you knew those facts you wouldn't say they own the stock, and you wouldn't accuse them of pumping stock prices up.
    Nov 30, 2010. 10:09 AM | 1 Like Like |Link to Comment
  • REITS With the Right Stuff [View article]
    I'm with you, HaoleBoy--and, in my opinion, both share price growth and dividend growth are likely to be relatively strong going forward. Over the last 20 years, total returns on publicly traded equity REITs have averaged 12.40% per year, with share price appreciation averaging 5.52% per year while dividends accounted for the other 6.88% per year. For the S&P 500, share price growth has been slightly higher at 7.03% per year but dividends accounted for only 2.24% per year, so total return averaged only 9.28% per year.

    You should keep in mind, though, that--because of the low correlation between REITs and the rest of the stock market--a well diversified portfolio will have a substantial portion in non-REIT stocks (as well as bonds and cash) in addition to REITs. I'm a big believer in REITs, but they still account for less than 40% of my total portfolio.
    Nov 29, 2010. 04:42 PM | 1 Like Like |Link to Comment
  • Big Increase in Commercial Property Values: Don't Be Fooled [View article]
    Thanks, James--I'll be very interested in your thoughts. Links to the web sites of all of them are at
    Nov 29, 2010. 04:08 PM | 1 Like Like |Link to Comment