Cash flow is king in real estate, whether investing in properties directly or investing in the publicly-traded REITs. High capital expenditure (Capex) requirements are the main threat to cash flow in real estate portfolios, but are often glossed over since they don’t appear on the income statement. Seasoned investors appreciate how important preserving cash flow is, and REIT performance over time supports this argument. For those investing in high yield, high Capex property types, it’s worth investigating how much cash your portfolio is truly generating.
Source: Nareit | Repost Serenity Alts 12/17/2019
Cedrik Lachance, director of REIT research at Green Street Advisors, participated in a video interview at Nareit’s REITworld: 2019 Annual Conference in Los Angeles.
Lachance discussed the work that Green Street has done in recent years on property sector allocation.
“A lot of investors have realized that the sector decision is at least as important as the securities decision that they’re making,” Lachance said. He added that Green Street has determined that low capital expenditure (capex) property sectors tend to provide much better performance over time. “It’s true historically and we think it’s going to be true for the long term as well,” he noted.
Meanwhile, Green Street recently changed its NAV-based pricing model used to arrive at REIT investment decisions. While cosmetic changes have been made in the past, this constitutes a full redevelopment of the model. The results speak for themselves, as Lachance noted that “we’re having one of our best stock picking years.”