CNN Debate Night 1: A Brief Review

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By:  Justin Holden

  • Centrist (corporate) Democrats go on the offensive against the higher polling progressive candidates, Elizabeth Warren and Bernie Sanders.
  • Governor Steve Bullock has his first debate appearance of the year; remains irrelevant.
  • Marianne Williamson stands out with her detailed answer on slavery reparations, emphasis for getting special interest money out of politics, and a call to focus on the cause of problems rather than symptoms.
  • Bernie Sanders remains on message, but goes a step further this time by calling out moderator Jake Tapper for asking a “Republican talking point” debate question.
  • Beto O’Rourke avoids confrontation, again, with the other candidates.  The anticipation of a showdown with Mayor Pete Buttigieg does not come to fruition.
  • John Delaney succeeds in gaining significant air time by initiating heated policy debates with Sanders and Warren.
  • John Hickenlooper, Amy Klobuchar, and Tim Ryan have forgettable performances.

 

It came down to moderates versus progressives on night one of the CNN Democratic Presidential Primary Debates.  John Delaney came out swinging right out of the gate, referencing Warren and Sanders in his opening statement.  Other moderate candidates, particularly Hickenlooper, Bullock, and Ryan, were also quite vocal in their opposition to progressive policies during this debate.

The first debate topic was healthcare.  You had Medicare for all (left-wing policy), public option (center-right policy), and some convoluted policies that fell somewhere in between that spectrum.  Over and over again we heard about the concept of millions of Americans being thrown off their private insurance plans and forced onto Medicare for all.  Oh the agony!  Somehow, in 2019, it’s as if politicians and the talking heads on mainstream media alike haven’t woken up to the fact that the United States is the only major country on Earth left to not guarantee healthcare to it’s citizens as a right.

Another lengthy section of the debate focused on immigration.  Several candidates supported decriminalization of crossing the border while others remained against such a policy.  There was also disagreement among the candidates as to whether or not undocumented immigrants should be guaranteed healthcare.

Williamson, Sanders, and Warren all did themselves a favor in this debate and will likely see a boost to their poll numbers in the aftermath.  Delaney, the most vocal attack dog against progressive candidates in this debate, may see a small boost in support from conservative/centrist Democrats, but his poll numbers likely won’t show significant change due to the large volume of moderate candidates in the race and with Joe Biden still having the conservative/centrist lane on lock down.

You could make a case for several candidates receiving the “biggest loser” award, but I’ll go ahead and give it to Beto O’Rourke.  Beto is not articulating his policy positions well enough and even worse, he’s failing to effectively debate policy against other candidates.  Beto’s non-confrontational approach isn’t working for him.  Until Beto goes on the offensive and shows some real passion behind his policy positions, he’ll continue to fail in raising his post-debate poll numbers.

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REITS: Time For Investors To Take Notice

By:  Justin Holden

 

While the S&P 500 continues to be grossly overvalued as we get towards the back-end of this 9+ year bull run, investors are finding it increasingly difficult to find value and buy securities at an adequate margin of safety.  However, real estate investment trusts (or REITS for short) are currently being beaten down in price due to multiple factors.  For long-term investors, now is the time to take notice and monitor the sector’s highest quality companies.  In the event of further price declines for this sector, which would be a likely event for the remainder of 2018, we could see blue-chip REITS at bargain prices.

For novice investors who are completely unfamiliar with REITS, these companies essentially make money through real-estate related investments.  There are actually two primary classifications for REITS.  Equity REITS own and operate physical real estate, often times renting out their facilities to commercial and/or residential tenants and generating revenues off the rent that they charge those tenants.  Mortgage REITS (mREITS) tend to be a bit more complex in their operations since they primarily generate income by collecting interest on mortgage backed securities and related investments.  My preference between the two categories is for equity REITS.  To me, equity REITS are easier to understand and also safer because you’re investing in companies that own a portfolio of physical real estate properties, as opposed to investing in companies that deal with debt and paper assets.

I’ll also point out that there are some key distinctions to be made between REITS and common stocks.  In order for a company to qualify for being listed as a publicly traded REIT, it must, among other things, pay out at least 90% of it’s taxable income to shareholders in the form of dividends.  Another key distinction is in how you figure out valuations.  For common stocks, investors often look to the price earnings (P/E) ratio to determine if the security is overvalued, undervalued, or fairly priced.  But because REITS are allowed under the current tax laws to claim depreciation on properties that in reality are actually appreciating in value, this non-cash depreciation expense will artificially deflate the company’s earnings or net income on paper.  Because of this, we should use a price to funds from operations (P/FFO) ratio when discussing REIT valuations.

Now that we have covered some of the basics on REITS, let me explain to you some of the factors that are currently driving down valuations for this sector.  The market seems to be bracing itself for increased interest rates, which makes borrowing money more costly.  This will impact all companies to a certain degree, but REITS in particular seem sensitive to interest rate changes.  Perhaps this is because some of them rely heavily on the ability to take on debt in order to purchase more properties and thus fuel growth.  But another huge factor in the REIT sector selloff has been the perceived downfall of brick and mortar retail stores.  There are a number of REITS that lease properties to commercial tenants.  When those commercial tenants see their business fall on hard times, the risk is being unable to pay rent and closing stores.  The more stores that close, the more empty properties a REIT has in it’s portfolio generating zero in rent revenue until a replacement tenant is found.  The retail sector is really hurting right now due to powerful online competitors such as Amazon.  The most recent example is Toys R Us, which is closing stores all across the country and appears to be headed for bankruptcy.

But as with any market selloff, the fears tend to be overblown.  When we take a long-term perspective, it’s hard to see a future without brick and mortar retail stores.  There will be enough people that want to try on clothing before making a purchase, or enjoy the experience of going out to do their shopping.  It is difficult to envision that totally going away.  So unless you’re projecting that Amazon’s long-term outlook is taking over the world, you shouldn’t be too concerned about the downturn in retail.  As for the REIT sector selloff, we are seeing those equity REITS with high exposure to brick and mortar retail tenants getting hit hardest.  But even other classifications of REITS are going down in price.  This truly is the time to be greedy while others are fearful, and consider buying REITS on the dip.

Now sure, you could just buy a diverse fund focused on the sector like Vanguard Real Estate ETF (VNQ), but then you’ll be buying into some crap securities to go along with the truly high quality REITS, not to mention paying management fees for the fund via an expense ratio.  My recommendation would be to monitor the following list of individual REITS.  I have hand picked them because they are, in my view, the highest quality large-cap REITS for the entire sector and have a great chance to outperform over the long-term while allowing you to sleep well at night.  Just make sure that if you buy any of these securities, you do your own due diligence beforehand and buy on the dip, thus locking in a reasonable margin of safety.  Because as with any other type of securities investing, the goal is to buy low and sell high.

Justin’s REIT Watch List:

  • American Campus Communities, Inc. (ACC)
  • Digital Realty Trust, Inc. (DLR)
  • Federal Realty Investment Trust (FRT)
  • Hannon Armstrong Sustainable Infrastructure Capital (HASI)
  • Kimco Realty Corporation (KIM)
  • LTC Properties, Inc. (LTC)
  • Realty Income Corporation (O)
  • Regency Centers Corporation (REG)
  • Retail Opportunity Investments Corp. (ROIC)
  • Tanger Factory Outlet Centers, Inc. (SKT)
  • Simon Property Group, Inc. (SPG)
  • STORE Capital (STOR)
  • Ventas, Inc. (VTR)
  • W.P. Carey, Inc. (WPC)

 

Disclosure Statement:  Justin currently owns shares in Kimco Realty Corporation (KIM).  Justin is not a licensed financial analyst or financial planner.  Please do your own due diligence and research before making investment decisions.