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Investment Process
Overview
Our record reflects a rigorous investment process directed by an experienced team of investment professionals. This process provides a strong foundation for our conviction-oriented investment style by integrating important research perspectives on real estate markets, company cash flow potential and equity market pricing trends together with unique investment execution capabilities in the open market and in the structuring and negotiation of private placement securities.
Real Estate Research - the analysis of real estate markets to assess the supply and demand pressures that will drive rents and occupancy into the future.
Company Analysis - the analysis of companies – their real estate assets, management, capitalization and business strategies – to quantify their potential to generate sustainable growth in cash flow.
Market Strategy - the analysis of equity and debt market liquidity and pricing trends to establish a framework for setting risk-adjusted pricing thresholds for real estate companies.
Investment Execution - the disciplined construction and management of portfolios, including the structuring, negotiation and closing of private placement securities.
The following sections further expand upon the focus and output of our team.
Real Estate Research
Research analysts focus on real estate markets drawing experience and data from Security Capital's network of real estate operating companies. Using economic and demographic data and proprietary models, research analysts provide detailed perspectives on future supply/demand trends for key property segments and markets.
Overlaying a geographic profile of individual company real estate holdings enables the translation of market research into perspectives on the relative impact for different companies. A key output from this process is a quarterly report that generates an array of real estate companies according to the relative strength of the rent and occupancy "pressures" impacting their portfolio.
Company Analysis
Investment analysts focus on analyzing real estate companies and modeling their cash flow potential. Their work focuses on the unique characteristics and qualities of individual companies comprising our 100-plus company coverage universe. The analysts conduct frequent one-on-one meetings with company management teams, building a foundation of research that involves rigorous scrutiny of SEC documents and extensive fieldwork to understand a company's assets, its operating management team, and the effectiveness of investment strategies.
The recurring output of the investment analysts include a detailed five-year cash flow forecast, an analysis of net asset value, and a detailed qualitative assessment of a company based on more than 30 criteria aimed at six primary research questions:
- The competitive stature of the asset portfolio
- The opportunity to generate internal growth in cash flow from the portfolio
- The potential to generate and deploy incremental capital at attractive economics
- The quality and depth of the management team
- The financial flexibility, transparency and risk in the capital structure
- Identifiable catalysts for driving stock performance.
Market Strategy
Market strategy focuses on establishing appropriate cost of capital thresholds for pricing real estate companies in our coverage universe of 100-plus companies. This effort requires consideration of the risks underlying the securities as well as the appetite for and pricing of risk in the broader capital markets, both equity and debt. With this understanding, we set discount rates and terminal multiples that govern the key discounted cash flow valuation and other valuation models we employ.
Investment Execution
All public market investment decisions are directed by a committee of senior investment professionals. The Portfolio Management Committee—Mssrs.
Manno, Statz, and
Bedell—meet formally on a weekly
basis and informally throughout the week. These rigorous sessions focus on identifying changes to our open market target portfolio of 20-25 securities drawing upon a real time database of key pricing, market and research data—the Integrated Valuation Matrix—as well as the consideration of emerging trends or issues that will drive the research agenda. Changes in the target portfolio lead to specific trading strategies for client portfolios with execution on a strictly pro rata basis under the direction of a market strategy team.
Mr. Rosenbaum joins the committee for all investment and portfolio decisions involving private placement securities. He leads the Investment Structuring Team that is responsible for negotiating and structuring private placement transactions, principally convertible securities on behalf of Security Capital Preferred Growth Incorporated. This team works closely with the research team in identifying and evaluating investment opportunities, and in conducting transaction-specific due diligence.
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