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Investment Process
SC-R&M's 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 capital market pricing trends together with unique investment execution capabilities
in the open market and in the structuring and negotiation of private placement securities.
Investment Analysis
SC-R&M's investment analysts focus on fully understanding the growth, sustainability and risk profile of
cash flow for individual public real estate companies in the investment universe. We accomplish this goal
by assessing and projecting operating market fundamentals utilizing micro-level emerging market data and
building an intimate familiarity with a company's asset portfolio, lease structure, management team and
capitalization structure. During this stage of the investment process, analysts perform company-specific
analysis and each real estate company is dissected and potential cash flow modeled. Analysts frequently
conduct one-on-one meetings with company management teams at all levels, building a foundation of research
that involves rigorous scrutiny of SEC documents and extensive fieldwork to understand a company's assets,
the competence and stability of its operating management team and the effectiveness of its investment strategies.
This entire process yields detailed five-year cash flow forecasts, analysis of current replacement value, and
comprehensive qualitative assessments of the investment candidates based on more than 30 defined criterion aimed
at six primary research questions:
- The competitive profile 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 returns
- 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
SC-R&M's market strategy team focuses on real estate operating and capital markets at a macro-level. Market strategy
analysts focus on establishing property type cost of capital thresholds for pricing real estate 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. This information sets the
discount rates and terminal multiples that govern the key discounted cash flow valuation and other valuation
models we employ. Market strategy also focuses on appropriate portfolio weightings by applying “optimizer models”
that evaluate each security's contribution to total rate of return and index-relative tracking error. Trading
strategies are also executed under market strategy.
Investment Execution
All public market investment decisions are directed by a committee of senior investment professionals. The Portfolio
Management Committee—Messrs.
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 SC-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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