REXR - I Started From The Bottom Now I'm Here
2023-12-26 07:00:00 ET
Summary
- My experience of playing Monopoly as a child taught me valuable lessons about strategy and patience.
- My journey from starting out in commercial real estate allowed me to accumulate a multi-million-dollar fortune.
- However, I was forced to pivot and I'm so glad that I did.
- Thank you for reading and Happy Holidays!
When I was a kid, I loved playing Monopoly with my dad.
I learned how to play the hard way…
By losing.
After many, many attempts at winning, I finally figured out how to win.
Oh, you thought Monopoly was a game of luck?
Hardly.
It requires skill and strategy, something that I learned to do only after failing repeatedly.
The more I lost, the more I wanted to win.
The first few attempts were discouraging, because I got crushed.
I would always put all my eggs in one basket, trying to own two or three properties, hoping that I could bankrupt my opponent.
But that never worked.
I learned to be patient, calculated, and downright greedy.
I’ll never forget the day that I finally won, and the feeling of validation that I had made all the right moves to become a wealthy landlord.
But wait.
It was just Monopoly money…
Real Time Monopoly
Years later when I was in college, I decided that I wanted to make a living investing in commercial real estate.
I got my real estate license when I was 18 and I began working immediately after graduation.
My first job was as a commercial real estate leasing agent.
I worked for a wealthy family who had owned land in the County supposedly going all of the way back to the Kings Grant (a document, which is a royal promise that parceled out land to settlers).
For a hungry kid fresh out of college (with a student loan to pay back), I was anxious to make my fortune in real estate and learn from such a land baron.
Ironically, the gentleman’s last name was Cleveland...so “land” was truly in his blood.
I learned a lot more from my new boss than I could have learned in college or getting an MBA.
Because of the diverse landholdings, I was able to participate in developments that included:
- Shopping Centers
- Warehouses
- Flex Space
- Golf Courses
- Restaurants
- Mixed Use
- Billboards
- Self-Storage
- Healthcare
- Rentals
In a short period of time, I became a partner in the firm and I began using “real money” to make a real fortune.
And in less than a decade, I accumulated a net worth in excess of $20 million.
That’s right.
My net worth was negative $40,000 when I graduated from college…
And with no silver spoon to support me (I was raised by my single mom) I grew my fortune to over $20 million.
It took a lot of hard work to make that happen and I took on considerable risk by signing personal guarantees and promises to pay.
All of the bankers were my friends.
I got just about anything that I wanted.
The houses got bigger.
The cars got faster.
The vacations more exotic.
Then…
The Great Recession
I landed on Seeking Alpha in 2010, just as I was clawing out of the Great Recession.
As you can imagine, I was forced to reinvent myself as the word “developer” was like having the Scarlet Letter.
All of my so-called “bank friends” were looking for work as banks were dropping like flies.
At first, I had no plans to publish regularly on Seeking Alpha.
I was still working a regular job that provided a steady paycheck for my family of seven.
But after my fourth or fifth article, my employer fired me…
For writing articles on Seeking Alpha.
How worse could it get?
I kept writing here on Seeking Alpha and as shown below (most followers on Seeking Alpha), I never slowed down.
That’s just under 4,000 articles in 13 years.
That includes four books too.
I also teach REITs at NYU, Cornell, Penn State, Clemson, and UNC.
In short, I’ve come a long way since learning how to play Monopoly.
I’m now teaching you how to play REIT Monopoly with “real money”.
Here’s how I explained it on “X” this week:
@rbradthomas
Adding to my Intelligent REIT Portfolio
As most of my followers know, I’ve been adding to my core (anchor) REIT positions:
While also looking to allocate capital to a few outliers like:
Today I would like to focus on these outliers because I believe they could generate outsized returns over the next 12 months.
Let’s start with...
Rexford Industrial
This industrial REIT owns 371 properties (45 million square feet) throughout infill Southern California, the largest industrial market and consistently the highest-demand with lowest-supply major market in the nation.
Although some are fearful of West Coast real estate, I like the fact that Rexford owns assets in such a vast and diverse economy in which 22 million people reside and over 600,000 businesses. Southern California has the lowest vacancies through all economic cycles and the lowest supply risk in the nation.
As viewed below, Southern California is larger than Germany, the UK, Canada, Frances, or Italy,
I always seek to own “wide moat” stocks and Rexford fits “the moat” like a glove.
It’s the lack of developable land in SoCal that makes the moat, which simply means that there are permanent barriers (mountains and oceans) and restrictive zoning that constrain supply.
In addition, demand remains strong as Rexford is currently tracking ~40 million square feet of incremental, diverse tenant demand currently seeking space.
For Rexford tenant demand continues to demonstrate resilience with market occupancy hovering around 98% in Q3-23, “equating to the 2019 market occupancy levels immediately preceding the pandemic”.
The company said that it expects to “see market rent growth normalizing from the unprecedented growth experienced during the pandemic” while it “continues to experience healthy diverse tenant demand as reflected in strong operating metrics”.
Rexford is “currently situated with an estimated 33% embedded cash NOI growth within the existing portfolio, realizable over the next two years, assuming today's rents.”
The largest NOI growth derives from the company’s repositioning and redevelopment work – a 4 million square foot pipeline with a projected 6.4% unlevered yield.
Rexford’s balance sheet is also impressive, with net debt-to-EBITDA of 3.7x, liquidity of around $1.5 billion (includes $83 million of cash, the $1 billion revolver, and approximately $450 million of forward equity), and strong credit ratings from S&P (BBB+), Moody’s (Baa2), and Fitch (BBB+).
Rexford increased its 2023 core FFO per share guidance range to $2.16 to $2.18 per share (from the previous guidance range of $2.13 to $2.16 per share) which represents 11% year-over-year earnings growth at the midpoint.
As seen below, analysts are forecasting Rexford to grow by another 16% in 2024 and a whopping 19% in 2025.
As you can see above, shares have surged over the last 60 days, but I’m still buying. Currently, shares are trading at $56.19 with a P/AFFO of 32.7x and dividend yield of 2.7%.
That’s not cheap (anymore), but respectable for a newbie investor looking for a 20% total return opportunity.
Alexandria Real Estate
Alexandria is a unique office REIT that focuses on life science, agtech, and advanced technology mega campuses in AAA innovation cluster locations.
Like Rexford, what differentiates Alexandria from other office REIT peers is its 75 million square foot mission-critical portfolio located in high barrier to entry markets like Greater Boston, the San Francisco Bay Area, New York City, San Diego, Seattle, Maryland, and Research Triangle.
In Q3-23, ARE saw solid leasing performance that included 870,000 square feet of leasing with a weighted average lease term of 13 years and very strong leasing spreads of around 20% (29% on GAAP basis). The company is on course to achieve occupancy of 95%+ by year-end.
ARE's outlook for 2023 same-property NOI growth is solid with a midpoint of 3% and 5% on a cash basis.
The balance sheet is also solid, with $5.9 billion of liquidity and no debt maturities until 2025. Around 99% of debt is fixed rate and the company said that it’s “on track to achieve its net debt to adjusted EBITDA goal of 5x on a quarterly annualized basis by 4Q ’23.”
Like Rexford, ARE also has strong credit ratings from S&P (BBB+) and Moody’s (Baa1).
In Q3-23 ARE updated its FFO range of $8.97 to $8.99 (midpoint of $8.98) which represents 6.7% growth in 2023. As seen below, analysts forecast growth of 5% in 2024 and 4% in 2025:
I wrote an article for subscribers at the end of October in which I explained that “Alexandria stands out as a potential long-term opportunity” and since that time shares have surged by an impressive 37%.
Hopefully, you jumped on the train….
But if not, no worries, because it hasn’t left the station “yet”.
ARE is no longer a Strong Buy, but definitely a buy as shares are now trading at $127.75 with a P/FFO of 14.3x (normal is 20.1x) and a dividend yield of 4.0%. A newbie could see returns of 20% to 25% annually from here.
I’m Excited About 2024...
I don’t know about you but I’m soooo excited for 2024.
I’ve spent the last six months building a fortress REIT portfolio and I’m still adding.
In a few days, I will be writing my 2024 sector-by-sector REIT forecast (for members) in which I will reveal my blue-chip blueprint.
As far as I’m concerned, all the stars have lined up for REITs in 2024.
(What better timing for the upcoming REIT Masterclass and REIT ETF.)
As I reflect on the last 30+ years of my career (leasing agent, developer, analyst, author, teacher, investor) I’m grateful for all of “life’s lessons” that have made me equipped to become the most-followed author on Seeking Alpha.
Thank you for following me and allowing me to teach you how to win the REIT game!
Happy New Year
For further details see:
I Started From The Bottom, Now I'm Here