On Friday, September 30th, the two 2022-2023 Applied Real Estate Investment Track (AREIT) teams hosted the Fall Board Meeting. AREIT is the first program of its kind in the country, which gives students the opportunity to work with a team to manage a live $1.6 million portfolio of real estate investment trusts (REITs). At the meeting, students presented to the Isthmus Fund Board of Advisors their investment philosophy, process, and strategy for the upcoming investment period. The Board is comprised of senior-level REIT investment professionals who create a realistic environment and experience of the demanding client-manager relationship. Students get the unique opportunity to manage a live portfolio of investments in public securities, and receive advice and support from the Board throughout the year.
Due to large Real Estate Graduate program enrollment, the AREIT program has been split into two teams of five or six students each – the Red team and the White team. While there will be coordination amongst the teams regarding academics and portfolio administration, the Red and White teams presented completely different strategies for the Board’s approval and will continue to make investment decisions independently.
To accommodate the two teams, the current Isthmus Fund will be split in half, with each team responsible for the investments of their respective half.
Two Teams, different strategies, same investment goal: The goal for both the Red and White teams is to outperform the MSCI US REIT Index (RMZ) by 160 to 185 basis points or more. However, each team presented unique strategies to the Board to achieve this goal. With REIT stocks down over 28% year-to-date, record high inflation, and global geo-political risks, the AREIT teams had many factors to consider when creating their strategies.
The White Team’s Strategy: The White team, who presented first and consists of students Daphne Ding, Zach Hohl, Janay Hull, John Kujawski, Connor Stickels, and Will Zordani, plans to follow a blended investment philosophy through a combination of growth and value investing. They plan to identify companies trading at a discounted valuation relative to Net Asset Value (NAV) and companies that exhibit internal and external growth opportunities.
The team then presented two possible investments that they believe fit into the strategy: Welltower (WELL) and Public Storage (PSA). The White team believes that these two stocks are positioned to better perform in economic headwinds and to generate strong growth in the next 12 months.
The Red Team’s Strategy: The Red team, however, presented their philosophy of value investing. The team plans to locate stocks they believe are mispriced and overweight/underweight sectors by analyzing the supply and demand conditions and current economic environment. They believe this strategy will allow them to strategically position themselves to outperform the index.
The two securities presented by the Red team that fit into this outlook were Equinix (EQIX) and American Homes 4 Rent (AMH). The Red Team consists of students Margeaux Wysockey, John Torchio, Hwajun (Jun) Lee, Reny Pire, and Harrison Addy.
Both teams proposed to invest and hold a higher cash position than other AREIT teams have historically started as they expect market conditions to continually decline in the near term. Teams plan to start with 40-50% of their fund into the Vanguard VNQ ETF and 50-60% in cash while investments are made throughout the semester. The team will draw down the cash first as they make investments.
Next Steps for the Teams: After getting the Board’s approval on their philosophy, process, and strategy based on board member commentary, each team is responsible for two to three weekly stock pitches to AREIT Advisor Tim Pire for evaluation and, possibly, investment. The teams will invest their respective portfolios throughout the semester with the goal of being 90 – 95% invested by year end. Accordingly, each team will run weekly attribution analysis and reallocate funds if the portfolio falls outside of their risk tolerances.
Outside of portfolio management, the teams will travel to New York City in early November for the Global Real Estate Markets Conference, meeting with several leading real estate and financial firms while there. Additionally, the teams are attending NAREIT’s REITworld conference in San Francisco in mid-November. These experiences will provide a unique learning opportunity and the opportunity for students to correspond and interact with top REIT executives and investors.
The Winter Board Meeting will occur in late January, and we eagerly await to learn how each team’s portfolio has performed in a very difficult investment environment. Stay tuned!