1. Student Investment Management – Sector Presentation: Real Estate
Presented By: Mark Wilson, Rohit Kejriwal, Shuocun Yang

2. Agenda Overview Business & Economic Analysis Financial Analysis
Valuation Analysis
Recommendations

3. REIT Overview
Real Estate Investment Trust (REIT) is a collection of real estate assets
REITs can focus on various industries, such as: healthcare, industrial, office, hotel, mall, residential, etc.
They can also own a diverse portfolio of assets; most REITs primarily focus on one type of property
The largest public REIT is Simon Property Group(SPG), based out of Indianapolis
Market cap of $56.3b - 56% larger than the next biggest REIT: Public Storage (PSA)
SPG focuses on shopping malls and is the largest shopping mall operator in America.

4. REIT Overview: Size of Sector

5. Business & Economic Analysis

6. Life Cycles The 4 stages of the real estate cycle: 1) Recovery Phase:
interest rates lowered as a result of recession; vacancy in existing properties begins to decline compared to the recession time peak
2) Expansion:
economy is recovering, vacancy on existing properties continues to declines, new construction projects begin
3) Hyper supply:
economy is strong, new projects continue to come online, vacancy remains strong, but goes down as a result of increasing supply
4) Recession:
economy declines, projects from expansion phase continue to come online, vacancy is at peak level

7. Life Cycles

8. Effect of Interest Rates
Interest rates are negatively correlated with REIT returns. The correlation is -.66, which is moderate-high.
Interest rates are currently at very low levels, and will inevitably increase in coming years.

9. Current Trends in Real Estate
Construction activity is currently at peak levels, implying that REITs are either in the expansion stage on hyper supply stage
However, REIT occupancy rates are at the highest levels since 2000, which implies that REITs are in the expansion stage, since hyper supply range is correlated with declining occupancy
Given the large development pipeline in real estate right now, it seems likely that the hyper supply stage is imminent

11. Financial Analysis

12. Financial Data
S5REITS index’s current sales and earnings growth rate are lower compare to past.

13. Sales & Earnings

14. S&P 500 Comparison

15. Profit Margin

16. Operating Margin

17. Return on Common Equity

18. S5REITS index has stable margins and return.
S&P 500 Comparison
S5REITS index has stable margins and return.
Its margins are higher and ROE is lower compare to S&P 500 index.

19. Turn Over

20. S5REITS index generated negative cash flow in six of last eight years.
Free Cash Flow
S5REITS index generated negative cash flow in six of last eight years.

21. S5REITS index has lower free cash flow yield to S&P 500 index.

22. Dividend

23. S5REITS index has higher dividend yield to S&P 500 index.

24. Valuation Analysis

25. REITs vs. S&P 500 REITs Date Price to Earning Price to Book
Price to Sales
Price to EBITDA
7/9/2017
3.1823
7.5880
12/31/2016
3.2190
7.2816
12/31/2015
3.2748
7.3707
12/31/2014
3.3312
7.5478
12/31/2013
2.6529
6.2572
12/31/2012
2.9284
6.8358
12/31/2011
2.5020
5.9380
12/31/2010
2.6010
5.3618
12/31/2009
2.0648
4.8536
9.2307
12/31/2008
1.6592
2.7124
6.0662
12/31/2007
2.8285
4.1727
9.2671
S&P 500
Date
Price to Earning
Price to Book
Price to Sales
Price to EBITDA
7/9/2017
3.1285
2.0876
12/31/2016
2.9338
1.9722
12/31/2015
2.7740
1.8427
12/31/2014
2.8232
1.8114
12/31/2013
2.5782
1.6839
12/31/2012
2.1366
1.3376
12/31/2011
2.0474
1.2321
12/31/2010
2.1744
1.3390
12/31/2009
2.1535
1.2351
12/31/2008
1.9983
0.9107
12/31/2007
2.7674
1.5484
REITs - Realtive to S&P
Date
Price to Earning
Price to Book
Price to Sales
Price to EBITDA
7/9/2017
111.5%
1.7%
263.5%
-74.7%
12/31/2016
114.4%
9.7%
269.2%
-73.3%
12/31/2015
80.7%
18.1%
300.0%
-66.1%
12/31/2014
93.0%
18.0%
316.7%
-68.1%
12/31/2013
137.9%
2.9%
271.6%
-75.8%
12/31/2012
225.4%
37.1%
411.0%
-67.6%
12/31/2011
272.3%
22.2%
381.9%
-70.1%
12/31/2010
119.7%
19.6%
300.4%
-72.8%
12/31/2009
172.6%
-4.1%
293.0%
-75.7%
12/31/2008
52.0%
-17.0%
197.8%
-78.1%
12/31/2007
59.8%
2.2%
169.5%
-81.2%

26. FFO - Valuation Analysis

27. P/E Ratio vs. SPX

28. P/B Ratio vs. SPX

29. P/S Ratio vs. SPX

30. P/EBITDA vs. SPX

31. Current Price vs. SPX

32. Recommendation

33. Recommendation
Current SIM exposure to REIT is 2.16%; REITs are 2.92% of S&P
Recommendation:
Make OSU’s exposure to REITs equal to S&P – increase REIT exposure by 0.76%
Focus on industrial and healthcare REITS, since these have strong returns in the past 5 years and are poised to continue growing
Example stocks:
Prologic – Large Cap Industrial REIT
Bellweather – Large Cap Healthcare REIT

35. Thank You!
Questions???

36. Sources: http://www. investopedia. com/articles/04/110304
Sources: Bloomberg Terminal