CITI - REITs: drafting winners for 2H16...4 categories to put money to work
Careful player/stock selection is critical at this stage, especially following an unexpected ~4% selloff in stocks the day before the draft. Our strategy is to own a mix of “top line marquee players” that can provide reliable defense and growth from their best in class management teams, assets, markets and financial strength (AKR, BXP, SPG), a few “creative coaches” that have developed unique plays for their team that haven't yet been fully materialized on the field (FCEA, GGP, SLG, HST), a handful of "breakout players" that could see some near term catalysts to drive their performance above fans’ expectations (HLT, RPAI, SUI, VNO) and a couple of players off the “injured reserve” list that can be drafted at a good price given recent weak performance (AVB, LSI).
Weekly REIT and Lodging Strategy: Citi’s Fantasy REIT Draft – A Guide to the Draft
Top-Line Marquee Players
While everyone wants to own as many top line players as possible, they traditionally come at a hefty price, especially with REITs up ~10% YTD. Our top line "picks" AKR, BXP and SPG share some similar characteristics: 1) high quality asset portfolios in good markets, 2) deep and experienced management teams, 3) same store growth that is generally toward the high end of the peer range, 4) solid balance sheet capacity, and 5) continued value creation and growth through development and redevelopment programs.
Creative Coaches
Creative coaches are not afraid to think outside of the box and come up with unique plays to beat the competition. These coaches are often underappreciated or viewed as “higher risk”, given their strategies haven't been fully materialized on the field yet. However, these coaches offer the potential for higher reward in our view, given good anticipation in taking the right risks. Our “Creative Coach” draft picks include FCEA, GGP, SLG and HST.
Breakout Players
Some players are drafted to serve as a near term catalyst to help drive their team's performance above fan's expectations. The team likely has solid bones but needs an edge to drive performance higher in the near term. We looked for breakout players with one or more near term catalysts that could drive performance above expectations and drafted HLT, RPAI, SUI and VNO.
Injured Reserve
Some injuries are temporary while others are season-ending. When a player is coming off of an injury, a team can pick them up for below their actual value. Herein we highlight stocks that have underperformed for company and sector specific reasons that we believe have the potential to outperform over the next 12-months. Our Injured Reserve picks include AVB and LSI.