REITs Are Trading Below Book Value – Are Wall Street Misperceptions Drenching Your Stock Price?
Real Estate Investment Trusts (REITs) sound like complex investment vehicles beyond understanding for most people. But they are not. As consumers, our own real estate investment decisions will likely be the most important financial decisions we ever make. The thought processes we use when we buy, sell, or lease apartments or houses should inform our understanding of the REIT sector.
Suppose you’re selling a house in the Pacific Northwest. It’s a beautiful part of the country, known for the great outdoors, exceptional coffee, and rain- lots of rain. You put a great deal of effort into maintaining your home- you’ve remodeled your kitchen, your roof can withstand years of precipitation without flooding. It’s clear that you’ve invested enough time, money, and energy into your dwelling that it should be desirable to anyone.
To your unpleasant surprise, your real estate agent recommends that you list the place at ten, even twenty percent under value. What was the point of investing in a home if the market can’t see the clear, tangible points of differentiation?
Help Investors Understand Your Story
If your REIT is trading at ten to twenty percent below book value, you’re going through the same problem. Any investor can look at the macros- shaky confidence in the economy, years of a sluggish housing market rebound, fears of an impending interest rate spike- and decide that REITs are a neighborhood they’d rather not live in. But not all REITs are created equal, and if the efforts of your management team to pursue prudent strategies and long-term growth aren’t propelling your stock value, it’s because investors don’t understand your story. They see the rain, and they see your competitors’ leaky roofs, but not the work your organization has done to stand out.
The long-only, buy-and-hold investors are a lot more like homebuyers than we think. As we go about our lives, we tell ourselves we’re cold-blooded, rational, “numbers people”, but it’s the story that makes our decisions and the numbers that merely justify them. Our home-buying decisions aren’t made on spreadsheets alone; we make them based on our comfort with the homes we plan to inhabit. When sell-side analysts and fund managers make decisions about the REITs they cover, the narrative determines how comfortable they are with the firm’s management team, and the strategy going forward- and the stock price follows.
You can’t stop the rain. You can’t fix your neighbors’ roofs. But if your team has made the right decisions to guide your firm through the tough times and built a sustainable business model, you need to use all the channels at your disposal to tell that story and make sure investors understand it.
Rivel Research has shown us that 84% of institutional investors use corporate and investor relations websites as part of their decision-making process, and unlike many of their other sources of insight, it’s the only medium you control. Your team has done the work- don’t let market hysteria wash away your value.