A focus on quality rental businesses
At Duff & Phelps, we have been managing institutional REIT portfolios since 1995, applying a rigorous fundamental research discipline that is our hallmark. We focus on listed securities as opposed to private real estate, which provides the liquidity and transparency of the public equity markets and, over the last full real estate cycle, provided a performance premium, on average, compared with private real estate funds1. Our investment philosophy is based on the belief that owning high-quality listed owners and operators with a “rental” business model will produce superior risk-adjusted returns. Focusing on this investment profile, we believe, should result in a portfolio that offers stable cash flows with the potential to increase them over time.
We conduct intensive fundamental research, spending considerable time analyzing managements’ capabilities and the quality of firm assets in order to identify candidates we determine are the most attractive in the listed REIT universe. In-depth cash flow modeling based on detailed ten year projections allows us to make reasoned judgements and invest in those securities we believe have the best chance of producing attractive risk-adjusted returns. We apply these disciplines to all three of our institutional REIT and listed real estate strategies: U.S., Global and International. We view real estate as a core building block for most portfolios. It offers the potential for the following benefits:
Real estate typically does not move in lock-step with stocks and bonds.
Active management can add value by capitalizing on inefficiencies within small- and mid-cap names.
Because rentals are contractual revenues, they have historically been able to produce stable cash flows and consistent income.
Shares of rental property companies have delivered higher risk-adjusted returns over the long term than non-rental companies, such as home builders.
Our Investment Process
1Source: NAREIT, REITs: Real Estate With a Return Premium, 2015. Based on U.S. stock exchange-listed equity REITs, as measured by the FTSE NAREIT Equity REITs Index, and data from NCREIF and the Townsend Group measuring the performance of private equity real estate funds available to U.S. institutional investors over the last full real estate cycle (from the third quarter of 1990 through the second quarter of 2008).