2nd interview with REIT - Want me to look at Earnings Report
Hi everyone, I am new to WSO and glad that I joined this community. I have a second interview with a REIT for an entry level analyst position. One of the things they want me to do for the next interview is look at their last earnings report (specifically Portfolio Data portion) and to give my feedback/thoughts on the results, as well as talk through any questions I might have.
I feel like this will be a very important factor on whether I get offered the position or not, and was hoping to get some advice on how I should approach evaluating this, and what I should come into the interview with. I appreciate the help.
I would take a look at their prior quarters supplemental just so you have a better feel of their portfolio / market concentrations / new acquisitions, etc. Have something interesting to talk about relating to their portfolio statistics specifically. What does their occupancy look like vs. sector peers, are they more concentrated in one specific market – if so, why? Come into the interview with a clear understanding of their portfolio structure, but also a good understanding of how they performed last quarter. Touch on interesting topics like CapEx, G&A, any issuance of debt / equity – again, is yes, why?
is there a way to find like a list of reits that would be considered similar?
Assuming this is with Cousins, Columbia property trust is another public office reit located in ATL. They don't cover the same geographic areas, but are similar in size. Check out Boston properties too.
Brookdale group is a PE firm that invests in offices across the sunbelt similar to cousins (this won't help with financial reporting but you can look at some of their case studies).
https://www.reit.com/investor/explore
List of public reits on the nareit website which can be sorted by sector.
Analysts reports should include a competitive set if you can get your hands on one of those, otherwise I think Yahoo Finance even links to companies they deem similar/competitive. Public REIT space isn't huge so there are likely a handful of real competitors in their given space/geography.
Is this for an office reit
Yes.
Investors in the REIT space focus heavily on Adjusted Funds From Operations (AFFO) as one of the key multiples for the sector. If a REIT is buying properties at a cap rate greater than their cost of capital, then AFFO generally will increase and vice versa.
Consider reviewing what types of properties make up their portfolio and look at whats available on the market. For a quick analysis assume WACC is equal to the dividend yield of this REIT. Then recommend some potential acquisitions that would be Accretive.
Recommending acquisitions sounds like an interesting thing to show them. Couple questions: 1. how do you compare cap rate to cost of capital? Like comparing the interest of debt to cap rate number?
Assuming this is a publicly traded REIT, just Google what their dividend yield is and that will be your assumed WACC, so say it is 6.50%. Just do a simple search on Loopnet or broker sites and pull some listings/offering memorandums. If the deal has a cap rate that is greater than 6.50%, then it is assumed that the deal will be Accretive and increase AFFO which will make investors happy.
Now, a WACC of 6.50% is high and would make purchasing real estate in today's current market difficult. Even if the firm is buying real estate valued at a cap rate of 7.50%, that 100 basis point spread is rather thin; 200 basis points would be ideal. To lower WACC, you could recommend a disposition strategy to be a net seller. Most REITs purchase real estate on their line of credit and debt financing cost is a major component of WACC. Proceeds from selling real estate would be used to pay of lines of credit.
Go their investor relations page and take a look at past investor presentations. Those are always full of good information that otherwise would take longer to tease out of quarterly or annual filings. Good luck.
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