I. Overview
Assignment Intent
The purpose of this project is to integrate all the aspects of what was discussed during the course to evaluate a Real Estate Investment Trust (REIT). Like CMBS, REITs can be viewed as both a financial security and the underlying real estate portfolio. Our view of a REIT as a financial security is for benchmarking overall performance in terms of its stated identity and goal, not as an investment within a financial portfolio.
For the purposes of this assignment, we are focusing significantly on the REIT’s underlying property composition within its portfolio and how financially resilient that real estate portfolio will be in light of future competitive pressures. As a result, we don’t have to worry about either its role in portfolio diversification or its financial performance compared to other investments. Instead, we want to see how close REITs (like funds) can deliver on the promise of their stated identity and profile within the context of that resiliency in light of current market trends.
To achieve that, part of your analysis will include evaluating the real estate asset composition, leverage, revenue etc. as well as its geographic, property type and tenant quality range, as available information permits. In performing this analysis, it is recognized that different investors have differing performance requirements and risk constraints, and will need “different things from different REITs” like with any other investment.
Introduction
Your evaluation of a REIT assigned to you will utilize research on past and present performance to project future prospects in light of current market economic conditions. You are looking into a “crystal ball” to ascertain what direction a REIT is going – towards future economic health and financial prosperity or “into the dumpster” of bankruptcy and “lost investment.”
WHEN COMPLETING THIS ASSIGNMENT DO NOT HAVE ANY PREDETERMINED CONCLUSIONS OR USE THIS AS A MEANS TO SUPPORT ASSUMED SUPPOSITIONS – USE THE DATA TO ARRIVE AT FINDINGS THAT WILL BE SUPPORTED BY THE DATA,YOU MAY BE SURPRISED BY WHAT YOU FIND!
Using the step-by-step method described in this document (“The Paper Itself”section) in sequence (skipping steps only leads to your confusion and frustration), you will learn how to create a complete analysis. Using the resources described here, you will then use that information to formulate your outlook on the REIT as an investment, as well as its future prospects.
It is critical that you use the method outlined like you would follow a recipe or a set of directions. Do not be overwhelmed or try to “anticipate the process.” Following the directions in sequence and fully will lead to success.
You will each be assigned a REIT to investigate based on your preferences for property types provided at the beginning of the course. If you want a different selection based on changing asset preferences, please let me know and we’ll try to work something out. Note that many of you picked multifamily, which from a REIT perspective has limited selections so some of you will be assigned REITs with other asset classes.
Scope
Your perspective in this assignment is that of a financial advisor to an investor who is considering investing in a particular REIT. As such, you will need to answer these broad questions about your assigned REIT using your research:
- What does it consist of (property types & quantities, tenant leases and the underlying tenant quality as information is available, etc.),
- What is its business strategy and management approach (Include Strengths, Weaknesses, Opportunity, Threat [SWOT] Analysis)
- What is its identity
- How is it doing currently, how has it done recently?
- What are its stated plans for the future
- How well is it situated for the future economic environment (i.e. Post Covid, AI, E Commerce proliferation, automation, Globalized trade)
In your opinion section, you will make a case for the REIT’s pros and cons (excluding consideration of its role as a diversifying factor within an overall investment portfolio):
- Why it would be a good or bad investment opportunity;
- Detailed qualitative and quantitative data analysis supporting that conclusion.
- “Off the Record” Assessment where the student as a “Financial Advisor” state their opinion on the REIT and conclude on the consistency and suitability of the REIT for the described risk/return (rather than good or bad or desirable, even if past performance is lackluster – and a course change is needed.).
Project Scoring
The paper will comprise 25% of your final grade. In addition, for extra credit that can be applied to the overall course, you can provide a create and submit a Powerpoint presentation based on your findings, which will follow the flow of the Paper – the presentation is a high-level version of the paper with its conclusions. The amount of extra credit earned will be based on the quality, comprehensiveness and completeness of the presentation, and will represent no more than an additional 20% above your grade for the paper. The maximum score you can get for this assignment is 25% + 5% (20% of 5%) where any remaining overage in points is applied to the rest of the course overall, proportionally.
II. The Paper Itself
Content of Written Memo:
The paper is designed to be similar to a memo to be written to an investment committee, highlighting your analysis and conclusions.
Start with an executive summary, briefly summarizing your findings and then backing it up with key elements of each component of the analysis. After the executive summary, support your analysis in the body of the memo. Avoid information that isn’t relevant to your analysis and conclusions.
Each of these topics needs to be covered in the paper:
Company history (what type of REIT is it? When was it established? Which markets does it cover? What kind of asset types does it have? Include the distribution of properties it has separately by geography and asset type
REIT valuation analysis and pattern of returns (compute market value of the stock using NAV, FFO, the Gordon Discount Dividend Model, Debt to EBITA Ratio). Include amount of debt along with the underlying collateral for each property currently held by the REIT, if available (it should be in the 10K). Compare current returns measured to previous years, going 3 years back – 2021,2022,2023.
Relevant market analysis for the asset types and geographies, and discussion of new opportunities (e.g. if the REIT invests in industrial in the Northeast Corridor [Boston – Washington DC] , what are the findings / relevant news / challenges in this market as well as for the asset type?).“An overview of market conditions for the asset types within geographies is appropriate.”
Consistency of Management, their portfolio strategy, and their track record for profitability – points to what experience the REIT managers have, their approach to managing the REIT’s assets/portfolio, and whether you would be confident trusting your money with them.
Recent activities or changes within the REIT such as acquisition, disposition, merger, privatization that the REIT was involved in and talk about how it is expected to affect the REIT financials and also how it illustrates the practices of the management
Future plans and current adaptation to market shocksincluding but not limited toCOVID, E-Commerce, AI, ever rising interest rates (fuelled by inflation). Include in this discussion is what those shocks are and the impact they have related to the asset types within the REIT, what the impacts are expected to be in the next 3 – 5 years to those asset types, how the REIT is expected to be impacted in the longer term, and how the REIT is responding to them (along with the levels of success it is having given these constraints.
Discussion of how this REIT compares to the S&P 500, corporate debt, treasury securities or other comparable investments (broad sense using “typical annualized benchmark returns”).
Given your previous assessments, how well is the REIT is situated in light of market shocks? How stable is the REIT and what is the likelihood that performance continuing in the future? What recommendations would you make to improve the REIT’s prospects, and what is the feasibility of the REIT making them? If you had money (i.e. $100,000) would you invest in this REIT?
Formatting Criteria
The project will include an approximately 8-to-12-page written term paper, Arial 10-point font (or equivalent), excluding graphs, charts, maps, tables etc. that you may include (so the total paper length can be more, including those devices).
You will include links (or downloaded pdf or other files) to sources used; in this way your sources will be “fully annotated.” You can use Wikipedia as a starting point (which also needs to be documented) but any Wikipedia entry must be vetted at the source level, with those sources documented and “linked” as the primary sources for the entry. As with the Excel Project #1 (Proforma), blogs are not allowed as primary sources.
The language used in the paper needs to be factual “dry prose”- “Just the Facts.” No inspirational quotes or other “flourished language” will be tolerated. Likewise, anecdotal information, or personal experiences alone weakens the rigor of your analysis, and in consequence, will affect your grade. If you use anecdotal information or personal experience, it needs to be documented by an outside source. Your analysis is “data driven” and needs to be factually based. You can use bullets and sections as instruments of clarity, but not as the sole means of delivery – a paper is not a presentation.
For extra credit (described in “Project Scoring”), you can also provide a Powerpoint presentation on your findings. That Powerpoint presentation cannot be a substitute for the written paper.
Real Estate/REIT Data Sources
At a minimum you need to access and utilize the following information:
Annual Reports for the last 2 years (2022/2023) plus first quarter reports (1Q 2024) if available. These are available on the REIT’s website, and illustrate what the REITs are saying to / sharing with their shareholders and investors.
Securities filings 10K (Annual Report), 10Q (Quarterly Report) for the last 2 years. These are official legal filings that the REIT prepares for the US Government Regulators (Securities & Exchange Commission), and are ostensibly more complete and truthful than the Annual Reports. They traditionally include portfolio inventory and valuation, financial statements and an evaluation of incumbent risks to the REIT. If your REIT went private, or is defunct, please provide the two years most recent and available, prior to that event. They are accessed through:
https://www.sec.gov/edgar/searchedgar/companysearch
Also look at the REIT’s website as well as its information available from the REIT trade association, www.reit.com. This information should be interpreted from the perspective of “how it views itself,” noting that much of the information can be construed as “self– serving marketing fluff.” While it never should be relied on as a primary source. There are insights that can be gleaned from it.
You will need to research specific geographies asset types and market impacts – you can get information on these based on market reports from the big real estate brokerages (C&W, CBRE, JLL, CRESA, Avison Young, Marcus & Milichap,etc) – you register for their websites and access the information. These websites also have market sector special reports which can be quite useful.
An additional resource is Price Waterhouse Cooper’s Real Estate Trends, which is on Blackboard’s site for this course.
Demographic Data Sources
When needed, demographics for specific regions can be obtained through the US Government’s www.census.gov website. An easier tool (which Baruch has a license for) is www.socialexplorer.com, which should be available through the Baruch library’s electronic resources. The 2020 census data and American Community Survey for Metropolitan Statistical Areas is sufficient. Relevant data points for this exercise include Population/population density, housing availability/cost, Median Household Income (how much money is earned/spent by people in the community), Age Distributions of Residents (demonstrating how old or young the people in a community are along with ancillary uses they may have for goods and services) and ethnic distribution / origin of residents.
Be general with this and limit analysis to overall trends within categories and regions – specificity to individual properties is not necessary and bogs down the analysis
Other Data Sources
General databases for newspaper articles etc. are below
https://remote.baruch.cuny.edu/login?url=https://www.snl.com (Instructions on Blackboard)
https://global.factiva.com/ (Baruch Library Database)
https://www.reit.com/what-reit/reit-basics (online source)
Use Google data searches for the REIT name and other relevant topics to see what comes of it.