Good REITS

Hi all
After the interesting thread on whether picking individual shares is for mugs, I was wondering if anyone who has a good understanding commercial property can tell me what they think of a particular ASX listed REIT I have on my radar.
Its called Reckson New York (RNY), They own a portfolio of offices in the NY tri state region. According to last annual report they are almost 90% occupied and generating enough revenue to cover their interest 2x.
I had a small speculative stake based on its large discount to NTA, but was considering topping up due to the prospect of a recovery in the NY comm property market which could make this even more underpriced.
I recently noticed that the Intelligent Investor Value Fund has bought a sizeable stake of the company and I like their general investment strategy, but I haven't had a great deal of experience in this particular geographic sector.

If anyone has any thoughts on the negatives or positives of RNY I'd be interested to hear them.
 
Hi all
After the interesting thread on whether picking individual shares is for mugs, I was wondering if anyone who has a good understanding commercial property can tell me what they think of a particular ASX listed REIT I have on my radar.
Its called Reckson New York (RNY), They own a portfolio of offices in the NY tri state region. According to last annual report they are almost 90% occupied and generating enough revenue to cover their interest 2x.
I had a small speculative stake based on its large discount to NTA, but was considering topping up due to the prospect of a recovery in the NY comm property market which could make this even more underpriced.
I recently noticed that the Intelligent Investor Value Fund has bought a sizeable stake of the company and I like their general investment strategy, but I haven't had a great deal of experience in this particular geographic sector.

If anyone has any thoughts on the negatives or positives of RNY I'd be interested to hear them.

I bought some of those about a year ago along with 1/2 a dozen other property trust shares. It gone up about 30% since. I thought it would have gone up more though.:confused:

It seems very cheap for what you get - NTA per share of 47 cents! At 13 cents a share it makes me wonder what's the catch?
 
I bought some of those about a year ago along with 1/2 a dozen other property trust shares. It gone up about 30% since. I thought it would have gone up more though.:confused:

It seems very cheap for what you get - NTA per share of 47 cents! At 13 cents a share it makes me wonder what's the catch?

"The catch" is risk. And the risk in this case is the uncertainty surrounding the refinancing of about half their portfolio due this year.

If you delve into the recent annual report, you will see that this trust has two halves. A bad half and a good half. Often the bad half can bring the whole company down.
In this case, the loans for the "bad half" that is due to be refinanced this year, is non recourse. Its fairly common in the USA. Basically it means that the lending institution only has a select tranche of properties secured against the loan. It means at worst, the company can just walk away from the loans and hand the keys back. Bad for the bank, but good for the investors.

I actually believe there is some value to be extracted from "the bad half" as it will probably get refinanced. But I'm very conservative when it comes to spending my hard earned, so when I valued this company I assumed a nil value for the bad half and only considered the good half, which is refinanced until 2016.

What the valuation of the good half returned was a NTA per share of 39 cents, so not quite 47 cents , but better than the current price of 13 cents. This also allows around 3 cents per share in earnings and thats a pessimistic scenario!

What I like is that the book value's of these properties are already the devalued amounts (they took a huge hit over the last 2 periods).

More reductions to come?
Maybe, but at current valuations they're returning 8.5% NET yield so I'm comfortable with that (interest rates are lower in the US). I also like the NY region as its usually the first to recover, whether that happens this year, 2011, or 2012, it doesn't matter as they are earnings positive.

Another good sign is that the directors have a lot of their own skin in the game after purchasing shares last year at around the same price its at now!

It gets and has virtually no following or analyst coverage at the moment. I prefer this as I will probably get out when half the investment world is talking about it (unless it hasn't reached fair value yet).

Let me know if your research uncovers anything I've missed!
 
It gone up about 30% since. I thought it would have gone up more though.:confused:

You are unhappy with 30% return in a year? When my pre-GFC American REITS did 30-35% a year, year after year, I was thinking it was pretty good.

If you could get into Vanguard's International Property Securities Index fund hedged AUD you'd be looking at nearly 60% in last year.
 
You are unhappy with 30% return in a year? When my pre-GFC American REITS did 30-35% a year, year after year, I was thinking it was pretty good.

If you could get into Vanguard's International Property Securities Index fund hedged AUD you'd be looking at nearly 60% in last year.


Compared to the other Reits I bought, RNY has had the lowest return. It also has the lowest trading volumes so I'm thinking this might be why. People seem to avoid low liquidity shares. Its liquid enough for me though.

If it gets to where I expect (hope!) that 30% will be minor.
 
Compared to the other Reits I bought, RNY has had the lowest return. It also has the lowest trading volumes so I'm thinking this might be why. People seem to avoid low liquidity shares. Its liquid enough for me though.

If it gets to where I expect (hope!) that 30% will be minor.

Its good to see we have some discussion on REITS.

Actually I'd be interested to hear any technical analyst opinions on this one.

If the share market reached a 6 month low today, but RNY stayed at a 6 month high, is that a bullish signal?

I normally would have said its a bearish sign and so its probably due for a correction, but the value investor in me says its way too cheap to let go.
 
The other REIT I've liked for a while is Real Estate Capital Partners USA Property Trust (RCU). Seems undervalued against its NTA per share although not by as much as RNY.

This one is also up 7% today on a disastrous day for the market.

I have been wanting to buy more but the sellers won't meet the mine or the markets buy price.

Does anyone else follow this one?
 
If the share market reached a 6 month low today, but RNY stayed at a 6 month high, is that a bullish signal?

I normally would have said its a bearish sign and so its probably due for a correction, but the value investor in me says its way too cheap to let go.

wouldn't that just show they've got a very effective hedge?

and if one of them is being "bought up" by a large fund, chances are, you've missed the boat.
 
and if one of them is being "bought up" by a large fund, chances are, you've missed the boat.

Maybe not. If you look at the ASX annoucements for RNY.
The Intelligent investors Value fund has been accumulating a 5% shareholding of the trust at around 11.5-12.5 cents a share over the last few months.

They are known to do good thorough research.

Current price, Bid 12.5, Ask 13 cents.
NTA per share is 40-47 cents depending on whether you use the annual report or my more conservative valuation.

Looks to me like the boat has only just started boarding the passengers. ;)
 
Maybe not. If you look at the ASX annoucements for RNY.
The Intelligent investors Value fund has been accumulating a 5% shareholding of the trust at around 11.5-12.5 cents a share over the last few months.

They are known to do good thorough research.

Current price, Bid 12.5, Ask 13 cents.
NTA per share is 40-47 cents depending on whether you use the annual report or my more conservative valuation.

Looks to me like the boat has only just started boarding the passengers. ;)

VE, you will be interested to know I asked my broker about RNY today.
I still use a traditional broker for my larger purchases as a final reality check as they have a good research team. Its saved me making bad purchases on more than one occasion. :eek:

He didn't know too much about it to be honest. He spent some time looking at it and his summary was:
A reasonable US economic recovery play
- Good management that hold more than 20% of the shares, so should do fine even if the economy worsens.
- Most of the loans are refinanced until 2016/2017. The rest is non recourse so protects the rest of the portfolio which has around 85% occupancy.
- It doesn't get much interest from the big players as its too small for them, he said $200K would buy out all the current sellers!

For what its worth, I think he was dumbing the prospects down a bit. You'll probably see some big trades go through tomorrow.;)
 
VE, you will be interested to know I asked my broker about RNY today.
I still use a traditional broker for my larger purchases as a final reality check as they have a good research team. Its saved me making bad purchases on more than one occasion. :eek:

He didn't know too much about it to be honest. He spent some time looking at it and his summary was:
A reasonable US economic recovery play
- Good management that hold more than 20% of the shares, so should do fine even if the economy worsens.
- Most of the loans are refinanced until 2016/2017. The rest is non recourse so protects the rest of the portfolio which has around 85% occupancy.
- It doesn't get much interest from the big players as its too small for them, he said $200K would buy out all the current sellers!

For what its worth, I think he was dumbing the prospects down a bit. You'll probably see some big trades go through tomorrow.;)

Good job!
Does he suggest any other Reits worth buying?

I spend around 6-8 hours analysing a company before investing in it.
So most of that is time wasted as I don't buy everything I study.

The hardest part is finding a good lead worth investigating as there is still a lot of overpriced carp out there.
 
He didn't know too much about it to be honest. He spent some time looking at it and his summary was:
A reasonable US economic recovery play
- Good management that hold more than 20% of the shares, so should do fine even if the economy worsens.
- Most of the loans are refinanced until 2016/2017. The rest is non recourse so protects the rest of the portfolio which has around 85% occupancy.
- It doesn't get much interest from the big players as its too small for them, he said $200K would buy out all the current sellers!
For what its worth, I think he was dumbing the prospects down a bit. You'll probably see some big trades go through tomorrow.;)

W123, it looks like your broker has been buying :)

There is now virtually no sell depth on RNY. 200K would have bought out all the sellers last week, but now only 10K would have the share price up at 19 cents! Remaining holders look to be in it for the long run. I expect that the last few Short term traders were shaken out of the tree last week in the panic and now there isn't much resistance left.

I suppose it can all change quickly, but I'm very bullish on these commercial investment while they are at such a discount to market value. I see no reason why this does not indicate the bottom of the cycle.
The lack of interest in the sector makes me even more keen being a counter-cyclical/value investor!
 
W123, it looks like your broker has been buying :)

There is now virtually no sell depth on RNY. 200K would have bought out all the sellers last week, but now only 10K would have the share price up at 19 cents! Remaining holders look to be in it for the long run. I expect that the last few Short term traders were shaken out of the tree last week in the panic and now there isn't much resistance left.

I suppose it can all change quickly, but I'm very bullish on these commercial investment while they are at such a discount to market value. I see no reason why this does not indicate the bottom of the cycle.
The lack of interest in the sector makes me even more keen being a counter-cyclical/value investor!

Agreed, it looks promising but I'm trying not to count my chickens.

I've diversified my commerical property investments across regions, but have a bit in USA and Europe, mostly all picked up while values are low and yields are high. The quality properties with good management won't go broke.

My biggest speccy is AEZ, but its a huge punt that I know I could lose the lot on. If it sees it through the next couple of years though, returns could be sizeable. I take some consolation in knowing I paid 3% of what the price was 2 years ago and don't buy the same size parcel that I would have bought when it was considered to be a "safe" investment.

I won't buy unless I can get at least a 10% net yield on NTA. On top of that I want at least 20% discount on price. There is still a fair bit around. I love being in a buyers market as I can take my pick of the quality (AEZ is the exception, we'll see how that goes :) ).
 
I got AEZ aswell.

Hoping to get more in the low 2's over the next few weeks.

But anything under 5c is good value for AEZ imo.

Agreed, it looks promising but I'm trying not to count my chickens.

I've diversified my commerical property investments across regions, but have a bit in USA and Europe, mostly all picked up while values are low and yields are high. The quality properties with good management won't go broke.

My biggest speccy is AEZ, but its a huge punt that I know I could lose the lot on. If it sees it through the next couple of years though, returns could be sizeable. I take some consolation in knowing I paid 3% of what the price was 2 years ago and don't buy the same size parcel that I would have bought when it was considered to be a "safe" investment.

I won't buy unless I can get at least a 10% net yield on NTA. On top of that I want at least 20% discount on price. There is still a fair bit around. I love being in a buyers market as I can take my pick of the quality (AEZ is the exception, we'll see how that goes :) ).
 
I got AEZ aswell.

Hoping to get more in the low 2's over the next few weeks.

But anything under 5c is good value for AEZ imo.

I take it you don't have that many either if you're willing to see a 50% fall just to get some more. I'm with you though, I might top up if it goes down more.

If its good value at 2 cents, its just as good at 3!

It'll never get to $1+ again but one of these days it might pay a 1 cent annual dividend, and then a 3 cent purchase price will have been cheap.
 
RNY has large relative expenses and wont likely make any profits for at least another year.

AEZ has seen current liabilities go:
96, 203, 753 in 3 years!
What sort of company & management would do that?
A desperate one.
Of course there may be plenty punter & pumpers out there thou.
 
RNY has large relative expenses and wont likely make any profits for at least another year.

Thats correct. There is some talk it could be sooner than that as management has been incredibly proactive in cutting expenses and property devaluations should be all out of the way.

The trouble is, when it reports its next profit, whether that be in 6 months, or 2 years, its earnings are likely to be in the 4-5 cents per share range so you will be paying a lot more than you would now.

The trick to making decent returns in the sharemarket is identifying the companies that have a good chance of making a profit in the future but are out of favour now.

And the share price won't just move up on the day before the announcement. It happens slower than that. First management and their cronies start buying, then the smart money ie boutique fund managers, then the value investors, then the momentum traders, finally the investors who prefer to invest in 'safe' companies.

If you look at the announcements you'll see this exact pattern in RNY and you can see what stage we are at.

The funny thing is, the last group to the party may extract a couple of years of 10% dividends and some CG which will result in them getting emotionally attached to the stock so they won't pick the next downward cycle (if it occurs) and end up selling at a loss, wondering how they can be so unlucky even though they pick safe shares.

I have at least 5 years experience of belonging to this last group in my very early days so I can relate to them well.
 
AEZ has seen current liabilities go:
96, 203, 753 in 3 years!
What sort of company & management would do that?

Probably one that never had any problems refinancing in the past but ran into the GFC just as loans were due to be refinanced. Oops! :eek:

Happened to a few of the REITs.

I reckon management is as much to blame as anyone who didn't see the GFC coming. ie nearly everyone!

I don't own AEZ.
 
W123 - not sure if you still follow this , but have you noticed some more positive signs that the tide may be turning in the NY market.

In the last few weeks RNY seem to have increased their occupancy at 35 Pinelawn to 91% (81% in December).
New leases look to have been signed at 6800 Jericho and 225 High ridge road as well. All looks promising as much of this is for the debt in refinancing negotiations.

Overall occupancy seems to be around the 83% level and starting to rise. It got to as low as 80% a few months back. 83% equates to around 4.5 cents in earnings after interest expenses.
 
W123 - not sure if you still follow this , but have you noticed some more positive signs that the tide may be turning in the NY market.

In the last few weeks RNY seem to have increased their occupancy at 35 Pinelawn to 91% (81% in December).
New leases look to have been signed at 6800 Jericho and 225 High ridge road as well. All looks promising as much of this is for the debt in refinancing negotiations.

Overall occupancy seems to be around the 83% level and starting to rise. It got to as low as 80% a few months back. 83% equates to around 4.5 cents in earnings after interest expenses.

Yes I have. Its still early days but looks like things are warming up.

Then I read articles like this about whats happening and I get very excited!

http://dealbook.blogs.nytimes.com/2010/06/09/its-just-a-few-deals-but-office-market-is-stirring/

"When S. L. Green bought Reckson, the capitalization rate, or cap rate, was 3 to 4 percent, Mr. Rechler said. When investors began buying again last fall, the cap rate had climbed to 7 to 8 percent. Now, rates are generally 5 to 6 percent. The decline in cap rates means an increase in value of 35 to 50 percent, said Michael Knott, an analyst for Green Street Advisors, a research company in Newport Beach, Calif. “It has been a stunning reversal,” he said."

I doubt this news has hit the market in OZ just yet. Information flows slowly on low Vol stocks.
Value emperor, if your calculations which assumed no growth in property values, gave you a valuation of about 35 -40 cents a share ( I can't be bothered scrolling back), what would it do to your valuation if the above 35-50% valuation increases is true?
I'm guessing quite a lot, seeing that RNYs properties were last valued at a cap rate of 9, and the market has then priced them even lower still.
 
Top