My Best Investments Of 2024

seekingalpha08-27

REITs are in a bear market.But I have still had some big wins this year.I discuss 4 of my best investments of 2024 so far. sitox In a recent article, I highlighted some of my worst investments of ...

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Not only are they the cheapest, but also the best performing, and they are the ideal size for a buyout with their ~$5 billion market cap.\" Then once again, just one month later, Blackstone announced that it would acquire AIRC in a $10 billion dollar transaction, paying a 25% premium to its latest share price:   YCHARTS This means that the capital that we initially invested in Tricon nearly doubled in value following these 2 buyouts from Blackstone. As a result, we have now profited from 4 buyouts of Blackstone in the past 3 years alone , adding considerable alpha to our portfolio. 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Just like anyone else, I sometimes make mistakes in my analysis and end up suffering losses. At other times, my analysis might have been correct, but risk factors played out anyway, causing the investment to underperform. Today, I want to turn to some of my biggest wins of the year. This isn't to boast about them, but rather to identify what types of situations have delivered the best returns for us. I would note that these are not our only successes. Since the inception of our Investing Group, we have sold 75 positions and most of them were very profitable. Here are 4 recent examples: Tricon Residential & Apartment Income REIT Buyouts Last October, we bought more shares of Tricon Residential and speculated that Blackstone may attempt to buy it out. Here is what we said back then: \"Blackstone is the company that eventually bought out American Campus Communities, and today, they already have a $300+ million investment in Tricon, representing about 12% of the company's market cap. They even have a seat on the board. Blackstone has aggressively grown its portfolio of single-family rentals in the past years. It bought a $6 billion portfolio in 2021 at a ~3.5% cap rate.\" Just a few months later, Blackstone (BX) announced that it would acquire Tricon, resulting in a nice gain for us:   YCHARTS We then decided to use some of these proceeds to initiate a new position in Apartment Income REIT (AIRC) which at the time of our purchase was arguably the best deal in the residential sector. Again, we suspected that Blackstone could be interested in buying out the company and made the following comment: \"AIRC is today one of the biggest investments of Land & Buildings, which is one of the REIT activist REIT investment firms. Recently, they pushed Tricon Residential (TCN) to put itself on the market to unlock value, and ultimately, Blackstone bought it out at a 30% premium. Could AIRC be next in line? It wouldn't surprise me. Not only are they the cheapest, but also the best performing, and they are the ideal size for a buyout with their ~$5 billion market cap.\" Then once again, just one month later, Blackstone announced that it would acquire AIRC in a $10 billion dollar transaction, paying a 25% premium to its latest share price:   YCHARTS This means that the capital that we initially invested in Tricon nearly doubled in value following these 2 buyouts from Blackstone. As a result, we have now profited from 4 buyouts of Blackstone in the past 3 years alone (ACC, PSB, TCN, AIRC), adding considerable alpha to our portfolio. We know what characteristics these private equity players are looking for, and this allows us to consistently benefit from such transactions:  Discount to net asset value Moderate leverage Multifamily or industrial exposure Value add potential Short-term fixable issues Inefficient management that could benefit from scale.  It should also be noted that this is a strong vote of confidence for the REIT sector. AIRC specifically was a massive $10 billion dollar deal. Blackstone is one of the most sophisticated real estate investors in the world, and they are quite literally buying REITs hand over fist. That tells me that we have been doing something right. Helios Towers (HTWS / OTCPK:HTWSF) Helios Towers is one of our largest foreign real estate investments, representing 13% of our International Portfolio. Last October, we bought more shares of the company, and in a tweet in December, I noted that it was my Top Pick for 2024.   X - Jussi Askola, CFA Here are the results since then:   YCHARTS For those of you who are new to Helios, this is our only real estate investment in Africa. It is a cell tower company that's similar to American Tower (AMT) in the US, but a lot smaller, and it focuses exclusively on African countries. We have previously explained that we are bullish on the company because:  It can earn exceptionally high returns on its invested capital. It has a massive runway of external growth potential. Africa's demand for mobile is set to explode. Its assets enjoy significant lease-up potential. Its leases enjoy superior organic rent growth. It is diversified across various African countries to mitigate risks. It earns most of its rent from multinational companies in hard currencies. Its listing in the UK is a competitive advantage, as it gives it superior access to capital to keep acquiring more assets. It is priced at a much lower valuation than its US peers. It could become a buyout target, and such a deal would likely happen at a large premium.    Helios Towers The stock has done well for us and this is well-justified given the strong fundamentals of the company. Therefore, we have no plans on selling our position. We are in it for the long run because we think that it will rise considerably higher over time. In the first half of the year, the company's cash flow grew by another 19% year-over-year, and the strong growth is set to continue. Importantly, we are now getting near an inflection points that will change the company's capital allocation priorities. So far, its priorities were:  Optimized organic investments deleveraging distribution M&A.  But 1) has been achieved, with the company now having acquired significant scale and portfolio diversification. 2) is nearly completed, with the company expected to be below 4x net leverage in early 2025, and trending towards 3x by 2026. This means that the next step will then be to instate a dividend. The management noted that they expect to start paying a dividend in 2026. I believe that this will be a major catalyst for the stock. This is because the lack of a dividend is surely one of the main reasons why Helios has historically traded at a large discount relative to other cell tower REITs, even despite growing at a faster pace.   Helios Towers Last year, Morgan Stanley set an Overweight rating with a 160 GBX price target, which is 33% higher than today's share price. This was before the recent growth and other good news, which warrant a higher price target. Today, Helios is still trading at a mid-single digit of EBITDA and a high single digit of FCF, which is very far off from the 25-30x EBITDA multiples private tower deals. Sure, Helios is riskier given that it focuses on Africa, but it also presents far more potential. Helios has done an impressive job at mitigating risks by diversifying across various countries and leasing towers mainly to major multinational companies in hard currencies. If the significant discount persists, I would not be surprised if Helios eventually got bought out by American Tower or another global cell tower investor. AMT is very bullish on the prospects of Africa. Here is what they said on their Q1 conference call: [emphasis added]  \"In Africa, we're seeing tremendous demand for our assets. In local currency terms, we had one of the most successful quarters ever in Q1 in new business and so if you think about the demand for those sites, it's healthy. The networks are so critical there because it's driving their banking and their health care and all kinds of other things. So the growth in mobile data there is very robust... ... from a demand perspective, the best growth we're seeing in terms of new leases and amendments being signed is in Africa today.\"  It is a high-growth market with numerous opportunities and yet, high-quality consolidators like Helios are priced at low valuations. We are happy to hold on to our large position. Northview Residential REIT (NRR.UN:CA) At the turn of the year, we initiated a large position in Northview Residential REIT, and it has already been a very successful investment for us. Its share price has risen by 60%: Data by YCharts Is now time to sell? Or does it have more room to run? We think that the shares remain discounted, but the upside has now been reduced. When we initiated our position, NRR was priced at a steep discount relative to all other apartment REITs in North America, but at its current share price, its discount to NAV is now similar to that of BSR REIT (OTCPK:BSRTF), despite being quite a bit riskier. It is riskier because of its balance sheet and its focus on rural higher-cap rate properties. Its current LTV is 65%, down from 70% a year ago. That's good progress, but it is still quite a bit more than the ~45% LTV of BSR as an example. Fortunately, NRR has managed to extend a lot of its debt, and today it has a ~5-year average debt term and well-staggered maturities, which should give it enough time to work down its debt. The REIT also retains about 30% of its cash flow for deleveraging, and its rents continue to grow at a good pace. In Q2, its same property NOI grew by 18.2%! At this pace, the company will reach a much more reasonable LTV rapidly. That's a big deal because the only reason why NRR is so heavily discounted is the fear of its high leverage. If it can fix that, it could rapidly recover from here. Currently, it is priced at a 40% discount to NAV, 9.6x FFO, and pays a 7.7% monthly dividend yield that's fully covered. Just to recover halfway to its NAV, it would need to rise by 33%. Moreover, NRR is particularly well-positioned to benefit from cuts to interest rates because of its higher leverage. Therefore, we continue to think that NRR is the best opportunity among apartment REITs in Canada and will continue to hold our position.   Northview Residential REIT Closing Note Fortunately, we have had many more winners than losers over the long run, and that's how we have managed to outperform our sector benchmarks.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.27.0","shortVersion":"4.27.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2462164346"}