Real estate has always been one of the best ways to make a fortune in the United States and, indeed, in most of the world.
Almost 20% of the billionaires on the Forbes 400 became part of the super-rich because of real estate.
Real estate is a cornerstone of wealth for the rest of the super-wealthy too, with almost all of them having significant real estate holdings in their portfolios.
The latest study from CEM Benchmarking, a pension investment consulting firm, shows that listed real estate outperformed every asset class except private equity from 1998 to the end of 2021.
Given all that, you probably won’t be surprised by what I say next: I think most investors should have a lot more of their money invested in REITs than traditional allocation models suggest.
In this total return REIT portfolio, we are looking for REITs with solid fundamentals that are deeply undervalued. So let’s take a look at the current REITs portfolio:
Where We Stand
This review runs the full REIT book through our net asset value model, which blends two independent estimates of intrinsic value. The first capitalizes operating cash flow per share at a 7% rate, a proxy for what an informed private buyer would pay for the underlying real estate. The second uses book value per share as a floor. We average the two to arrive at a net asset value estimate, then divide the current price by that figure to produce a price to net asset value ratio. Anything trading meaningfully below 1.00 times earns a buy rating. Anything at or above fair value gets stepped down to hold, regardless of how much we like the underlying business.
12 names remain rated buy. Seven have run far enough that discipline requires stepping them down to hold. Nobody is rated sell outright, though several names are close enough to the top of their valuation range that we would not be adding fresh capital at current prices.
Portfolio Scorecard
Buy rated names are shaded green, sorted from deepest discount to net asset value to shallowest. Hold rated names are shaded gold, sorted the same way.
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