On Friday, February 2, the 2017-2018 AREIT team met at the University’s Fluno Center to provide Fund Board of Advisors with an update on the funds progress. The AREIT program allows a team of second year MBA students the opportunity to manage a real-world portfolio of Real Estate Investment Trusts (REIT). The team consists of John “Fordy” Gates, Bethany Corbae, and Nick Brown. They provided the board with several updates, including a recap of activity in the fall, a macroeconomic outlook, an updated investment strategy, the overall performance of the portfolio, and a tactical plan moving forward.
The team started out by restating the fund objective; outperform the MSCI US REIT index by 125 bps or more. This is the first time the AREIT team has presented to the full Board of advisors since the Fall Board Meeting in September 2017. The team recognized several key takeaways from that meeting in response to the Board members’ comments. The team identified their core philosophy and selected investment criteria that helped provide clarity to the Board. Since the fall board meeting, the team attended the REITWorld Convention in Dallas, and had several phone calls with individual board members to get insight on possible decisions.
After the recap, Bethany Corbae gave a macroeconomic outlook. The rhetoric supported the belief that the overall economy is strong. There is recognized GDP growth, unemployment continues to decrease, and new housing has increased. The new tax plans provided benefits to the market through increased after-tax margins, and foreign repatriation benefits. There were also a few benefits to real estate with the highlight being reduced taxes on REIT dividend due to new pass-through rate. In terms of REIT’s, the news was mixed. REIT’s are prone to interest rate movement which could make them less attractive. The team anticipates one more rate hike before the final Spring Board Meeting. Supply of real estate is below the historical average, but the team believes that several REIT’s are trading below their Net-Asset Value, which could provide some buying opportunities.
Nick Brown, the Portfolio Management Specialist provided the board with portfolio performance. The fund is currently performing better than the benchmark index by 15 bps with a beta of .95. Return on Invested Capital (ROIC) for the portfolio was 7.60% compared with the 7.16% of the index. The best performers of the Isthmus Fund included DCT Industrial, and Apple Hospitality with portfolio effects of +13 bps and +16 bps respectively.
The team is currently 72% invested and want to be 90% invested by the Spring Board Meeting. Moving forward, the team plans to select new trades to execute and exit positions upon reaching their target price or thesis change. The next AREIT Board Meeting is set for Friday, April 27. During this meeting, the team will provide another update for the Board, and provide a recommendation for the summer holding period. Several first year MBA students were in attendance to show support for the team. First-year student Eric Olson said, “We get to see all the hard work that the AREIT team puts in daily. It was great to see their hard work come to fruition and to hear the positive responses from the board.” As we look to the Spring meeting in April, first year-real estate MBA students will have big shoes to fill next year.