Our Equity REITs investment process builds a stable, low turnover portfolio for each of our Equity REITs clients, with the goal of providing attractive risk-adjusted total returns over the long term. A typical Phocas Equity REITs portfolio consists of 25-40 REITs, diversified across all important commercial real estate sectors.
- Phocas Financial begins by considering all major equity REITs
- We come up with a quantitative ranking, using three valuation methods weighted to account for where we are in the commercial real estate cycle:
Net asset value (NAV) analysis;Discounted free cash flow and potential for growth (DCF/Growth); andAdjusted funds from operations (AFFO) multiples.
- We conduct a qualitative analysis of each REIT, focusing on:
Management quality;Balance sheet flexibility;Asset quality / strong long-term (high barrier to entry) locations;Potential for AFFO and NAV growth; andIntrinsic value relative to market price.
- Finally, we construct a diversified client portfolio:
Weighting of sectors is based on individual security valuation levels and appreciation prospects; andRepresentation generally in all important sectors.