On February 3rd, the Applied Real Estate Investment Track (AREIT) team presented its quarterly portfolio update to the team’s Board of Advisors and attending faculty and students. Our team includes current second-year Real Estate MBA students includes Brian Hughes Cromwick, Dan Hansen, Zikril Hakim, Nataliya Vladimorova, Simon Bowler, and myself. Our winter board meeting outlined our current strategy and outlook; sector update; portfolio management plan; and portfolio performance year-to-date. Over the past three months, the team has methodically built its portfolio and invested in 30 equity REIT securities (approximately $1.6M in total value) across various real estate sectors. As stated in the beginning of the year, our team’s goal is to beat the MSCI US REIT Index (RMS) by the end of our holding period, which is the beginning of May.
The AREIT team was pleased to inform the Board that our performance has outgained the RMS by 98 bps (0.98%) and exhibited a total return of 1.07% year-to-date. While this return may seem small, the equity stock market has been extremely volatile over the past several months, especially after the election of President Trump - when the index was down almost 7.50% in mid-November. The six of us presented our current stock selections to the Board, and advised them that we have been actively managing the portfolio every day – in addition to handling our other schoolwork.
Brian Hughes-Cromwick, our macro economist and director of the office sector, presented a review of our fall economic outlook and ongoing winter strategy, followed by preliminary results and economic corrections from the past three months of managing the portfolio. There were several macroeconomic drivers that were supportive of our stock selections. Brian suggested that CRE fundamentals remain solid and that REIT leverage (debt/EBITDA) continues to improve each quarter - making REITs look more attractive. While rising interest rates are considered to be a threat to real estate securities, commercial real estate transactions and values in the U.S. continue to increase as the US dollar remains stronger and more attractive than many foreign currencies.
Dan Hanson, the team’s portfolio manager and director of the Industrial sector, explained to the Board that our individual stock selections were based on qualitative and quantitative research, as well as relative valuations. He also explained our investment strategy and what metrics we looked for in screening for strong stock picks. One of the keys to our success in generating alpha for the portfolio was through our strategy to overweight both the data centers sector and industrial sector. We also underweighted the retail sector, driven by the increasing threat of ecommerce, which has taken away in-store purchases from most retailers.
All six members of the AREIT team presented several highlights from our portfolio, and provided the Board with investment spotlights on various trades. These included Apple Hospitality REIT, Inc. (a hospitality REIT), which has gained 11.3% since 10/19/2016; Welltower Inc. (a health care REIT), which has gained 5.3% since we bought the stock on 11/25/2016; and DuPont Fabros Technology (a data center REIT), which has gained 11.6% since we traded into the stock on 12/14/2016. Bethany Corbae, a first-year Real Estate MBA student, said “The specific knowledge exhibited by each of the AREIT team members showed that they have been diligent in keeping up with real estate supply and demand trends in each of their sectors. The team effectively answered industry-specific questions from the Board at the end of the presentation.”
We ended our meeting by thanking the Board of Advisors for their support and guidance, as many of us have had ongoing conversations with Board members since taking over the portfolio in August 2016. We continue to monitor each of our 30 stock selections on a daily basis and proactively adjust our sector weightings as needed. It has been a challenge managing the Graaskamp Center’s AREIT portfolio over the course of the school year; however, my teammates and I have all gained invaluable experience in learning to manage a real $1.7M portfolio. No other real estate graduate program offers a program like AREIT, and we are proud to know that (at least year-to-date) we have reach our goal of both beating the benchmark and increasing the Fund’s total value.
Thank you to the AREIT Board of Advisors for their continued support and guidance!
- Joseph Betlej, Advantus Capital Management, Inc.
- Steven Buller, Fidelity Management & Research
- Michael Casey, The Blackstone Group
- Lee Christensen, Gebhardt Development
- Adam Cibik, Employment Retirement System of Texas
- Randall Eggert, State of Wisconsin Investment Board (SWIB)
- Brandon Goetzman, Blue Vista Capital Management, LLC
- Stephanie Krewson-Kelly, Corporate Office Properties Trust
- Reginald Pfeifer, Thrivent Investment Management
- Timothy Pire, (formerly) Heitman Real Estate Securities, LLC
- Seth Singerman, Singerman Real Estate, LLC
- Kenneth Statz, Security Capital Research & Management, Inc.
- Bob Thomas, RREEF Management
- David Toti, (formerly) BB&T Capital Markets