Sandy Mehta, Founder and CEO of Value Investment Principals
Sandy Mehta, CFA, Founder and CEO of Value Investment Principals Ltd. (VIP), has over 30 years’ experience in the investment and asset management industries. With a 12-year track record, VIP is focused on identifying unique deep value investment opportunities on a global basis.
Its clientele has included some of the largest as well as most prestigious money managers in the U.S. and Europe.
In 2015, Mr. Mehta founded Evaluate Research, his third entrepreneurial venture in global financial services, focusing on providing institutional quality research coverage for rapidly growing companies in the U.S. and EMs such as China, India, etc. Mr. Mehta also founded Acumen Capital Management in 2004, and incubated a long/short pan-Asia Hedge Fund with $200 million in both HF and long-only assets.
Previously Sandy Mehta was a PM of two 5-Star-rated mutual funds, including a flagship US$15 billion Global Equity Fund at Putnam Investments & Wellington Management in Boston.
In this 2,862 word interview, exclusively in the Wall Street Transcript, Mr. Mehta reveals his award winning methods for picking deep value stock winners.
“Value Investment Principals, or VIP, is an independent investment research firm.
We seek unique, deep value ideas on a global basis.
We have a 12-year-old track record. Many of the ideas that we research and we communicate with clients are ideas that nobody else actively follows. So the ideas are unique.
All have value, many with high dividends and also they have catalysts and growth characteristics.
VIP is one of three finance and investment firms that we have set up. The other two being a hedge fund, as well as another research business. And we have offices in Singapore, India, as well as in the U.S.”
One deep value example is another investment firm.
“…For example, one of the stocks that we follow is Silvercrest Asset Management (NASDAQ:SAMG). They are headquartered in New York City. This is a money management firm. It’s an investment advisory firm. They’ve had an amazing track record in all of their strategies for the past 24 years.
The stock is extraordinarily undervalued. It’s up 40%, since we got into this stock just about a year ago. The stock is trading at seven times p/e. It’s got a 4.5% dividend yield and it’s got an 18% free cash flow yield. And this company, over its 24-year history, assets under management have compounded at 31% per annum. And these guys really specialize in small cap and value investing and those strategies have really come back over the last six months. That is a huge catalyst for them.
Silvercrest has grown organically. But they’ve also made tuck-in acquisitions. They also have what they call the OCIO — outsourced chief investment officer initiative. So there are many things that they’re doing that are unique.
There are many asset management firms that are struggling because of poor performance. But this one is still, we think, relatively undiscovered with very strong performance and actual strong growth as well.”
Investment firms in China have significant growth opportunities, according to Sandy Mehta leading to their inclusion as deep value stock picks:
“Another stock is called Hywin Holdings (NASDAQ:HYW). It just recently had an IPO in March three months ago on the Nasdaq. It’s based in China. At the IPO, it had the price of $10 per share.
Today, the stock is about $8. So the stock is down 20%. And they are the largest independent wealth advisory firm in China. They also have an office in New York City.
But as the Chinese population, the high-net-worth category is the fastest growing segment of the Chinese population. And everybody, whether you’re in China or the U.S., everybody’s looking for which mutual fund in which to invest, what products to invest in to maximize your investment income.
And these guys really distribute a lot of privately sourced products. So real estate products, private equity products. That’s why they’ve been able to really grow their client base.
They just reported earlier this week on Monday 98% net income growth on 47% revenue growth for the March quarter. And the industry is only 6% penetrated in China versus wealth management advisory’s 32% penetration in Hong Kong and 62% in U.S.
This is a secular growth area.
The stock as I speak to you today is trading at a 6 p/e, 28% net cash, 18% free cash flow yield. At some point, it’s our opinion that they will likely have a sizable dividend as well.
Being listed on the Nasdaq, this is an easy way for U.S. investors to get exposure to companies overseas.”
Another China based asset manager makes the deep value cut for Sandy Mehta:
“Sun Hung Kai (HKG:0086) is a niche lender and asset management company in Hong Kong and China. Despite the recession last year, they had 23% earnings growth in 2020.
The stock is now beginning to do well; it’s up 30% year to date. We still see another 80% upside.
The stock is extraordinarily cheap and that’s why we like to talk about it. It’s trading at 0.5 times price to book. It has a 3 p/e and it’s giving a 6% dividend yield.
It’s a theme in terms of our investment style. We like to be paid while we wait. And these guys are doing a lot of good things in terms of setting up the company for future growth.
They’ve had a positive transformation disposing of their brokerage business and they’re adding fund management.
We think that despite the strong growth last year, there’s a lot more growth going forward for the company as well. For a 3 p/e, a 6% dividend yield, it’s just extraordinarily cheap.”
Sandy Mehta also sees deep value in luxury goods manufacturer.
“Another one is Movado (NYSE:MOV), which is based in New Jersey. They have their origins in Switzerland. So obviously, it’s a well-known watch brand. And what’s happening now, despite the global recession last year, and COVID still a concern globally, there’s really a boom in global luxury partially because maybe the stock markets have done well globally.
So companies that are listed in Europe such as LVMH (OTCMKTS:LVMHF), they own Louis Vuitton, Kering (OTCMKTS:PPRUF) which owns Gucci, Richemont (OTCMKTS:CFRHF), Cartier — those stocks are all trading at 30, 35 times earnings. They’ve all had very strong March quarter results.
Movado is a stock that is trading at a 6 p/e for a $30 stock, they have $8 per share in net cash and if you look at Swiss Industry Association data, watch exports out of Switzerland are booming, particularly to places like Asia and China.
This stock has risen above 40% since when we got into it, but it’s still about 40% from its five-year highs. And I think it’s really a beneficiary of strong demand for luxury products.
While its peer stocks are trading at record highs, this stock still has a long way to go, we think. We see at least 80% upside from here.”
Get more deep value top picks from Sandy Mehta by reading the entire 2,862 word interview, exclusively in the Wall Street Transcript.
Sandy Mehta, CFA, CEO
Value Investment Principals Ltd.
www.vipglobalresearch.com
email: sandy@vipglobalresearch.com
Don Harmer, President & CEO, GRASS Qualified Opportunity Zone Fund
Don Harmer is President and Chief Executive Officer of the GRASS Qualified Opportunity Zone Fund. Mr. Harmer, in addition to overseeing GRASS, is the president and CEO of Corporate Services of Nevada.
He has served as a confidential consultant and counselor to more than 3,000 clients around the world since 1993, focusing on enterprise risk management and operational and HR assessment.
He has significant experience as a leader of small- to mid-sized high-growth startups, emergent small businesses, and nonprofits, including power-generation and global energy firms, at both the key executive and board of director levels.
Mr. Harmer provides ongoing guidance in the operation and success of Corporate Services of Nevada.
He currently resides in Nevada with his wife and three daughters.
In this 3,305 word interview exclusive to the Wall Street Transcript, Don Harmer explains Opportunity Zone investing and the easy method his organization has created for this specific tax break.
“The qualified opportunity zone fund is part of the Jobs and Tax Act of 2017.
There are some subsets in that: 1400Z-1 and 1400Z-2. It has created a public-private partnership, so to speak, to encourage investors to invest in these qualified zones that have been designated by the different states and the U.S. government, based on the census tract, as mostly underserved areas, whether rural areas in Nevada or the West, and in the East often it is rural areas. It has been fairly successful.
We hybridized our fund with Internal Revenue Code 1202, which is qualified small business stock, and that has been around for quite some time.
The benefits to the investors have been bouncing around to being anywhere from a 70% to a 100% discount on capital gains, so savings to taxes.
During the Trump administration, 100% tax regains were codified into the registers. If you were to invest in our fund as a qualified opportunity zone fund under 1400, you can take gains from a previous investment and reinvest those into the fund and defer your gains taxes until December of 2026, and then get a 10% discount or a 10% step up in basis.
If you hold your investment for another period of time, as in three, five, or seven years, whatever it is, then depending on the entry point, 100% of your gains are tax free from that point forward.
Under the 1202 — that is what I refer to as fresh money investment or non-gain money — it can be invested and if held for five years and a day, 100% of the capital gains are tax free, so up to 10 times your basis, plus a basis with a maximum of $10 million.
Under 1202, there is a maximum tax-free amount of $10 million, whereas under 1400Z, it is more or less unlimited.”
The opportunity zone focus provides a variety of investment options:
“The zone is defined as contained within certain census tract borders. That was a function of the code to be able to define the locations of opportunity zones.
Each individual state was allowed to elect and designate areas, and then the federal government approved them.
They thought that was the most prudent way to identify an opportunity zone, and that is to use the pre-existing census tracts because they had all the data behind those different areas already.
We have two main focuses, and those are building very high-tech specialized aircraft hangars to be able to service Department of Defense contracts on government aircraft.
We also have the ability or a goal to build general aviation hangars for private parties that are not related to the government or the military.
We are located in a very unique location in an opportunity zone in Lyon County, Nevada.
I don’t know if you’re familiar with the Tahoe Regional Industrial Center in Nevada.
It has been in international news for quite some time now, as Google (NASDAQ:GOOGL), Tesla (NASDAQ:TSLA), Switch (NYSE:SWCH), and Blockchains, and similar companies have built big huge centers near there, as in data centers and manufacturing centers, etc.
We’re hoping to capture that private aviation market with general aviation hangars at the Silver Springs Airport.
The other area that we are investing in currently is regtech, or regulatory technology.
Regtech companies provide solutions in regulatory reporting, risk management, identity management and control, compliance, and transaction monitoring. We are specifically developing a proprietary SaaS — software as a service — to enable DOD — Department of Defense — contractors, meaning government contractors, to comply with government regulations for tracking every part that’s used on a government contract from inception to installation.
It’s been extremely challenging for those government contractors to comply so far, because there really isn’t a good, sound system out there.
We refer to it as we’re entering the regtech space because we have plans to expand into other regulatory environments after we get some ITAR approvals on our software.”
The structure presented by Don Harmer creates more liquidity options than is typical for Opportunity Zone investors:
“Most of it is going to be balance sheet supported, because we really aren’t going to be actively publicly traded in the beginning.
Now we have that option to take that next step when we close our Reg A+, after raising $50 million.
There are several options that we could pursue. We could do a full-blown registration and become publicly traded, or we could sign on for one of our tokenized security through our broker/dealer and a stock transfer agent, and trade on the secondary market.
If we went the route of the secondary market, if one of our shareholders wanted to sell, they would put the sell order through our broker/dealer or through their broker/dealer because at that time our stock could be put into IRAs.
Those are just two of the options that we could exercise. That’s why we set it up the way we did, to hopefully inspire our investors to have a long-term hold mindset and hold it for at least five years.
That being said, even after we close our Reg A+, if we don’t do that tokenized security platform — meaning sell shares on the secondary market, shareholders would still be able to liquidate their shares through the broker/dealer by placing a sell order.”
Read the entire 3,305 word interview with Don Harmer and get the complete picture on this Opportunity Zone investing vehicle, exclusively in the Wall Street Transcript.
Don Harmer
President & CEO
GRASS Qualified Opportunity Zone Fund
Ron Homer, RBC Global Asset Management Impact Investing
Ron Homer leads RBC Global Asset Management’s impact investing effort. Before joining RBC, he was co-founder and CEO of Access Capital Strategies LLC, an investment adviser specializing in community investments that was acquired by RBC in 2008.
Previously, he had a banking career including 13 years as president and CEO of the Boston Bank of Commerce. He has been on boards for Sallie Mae, Nynex Telephone and the Boston Foundation.
He also is vice chair and a founding board member for the Initiative for a Competitive Inner City, a research organization founded and chaired by Harvard professor Michael Porter to promote private sector investment in America’s inner cities.
He received a B.A. degree from the University of Notre Dame and an MBA from the University of Rochester.
In this 2,797 word interview, exclusively with the Wall Street Transcript, Mr. Homer describes the efforts of RBC Global Asset Management’s efforts in developing investments in underserved markets.
“The fund was created in 1997 and was the first registered mutual fund to focus exclusively on community development activities. Its initial focus was designed to help banks meet their regulatory objectives under the Community Reinvestment Act by targeting the use of government loan programs in underserved communities and among underserved populations to support access to homeownership, affordable rental housing, small business development, health care and education.
The fund was designed to help banks make investments in underserved communities, and particularly to create investments close to the credit quality and liquidity of investments that banks would ordinarily hold on their balance sheets.
Our belief was and is that the best community development impact investment strategies are those that are sustainable and scalable…
We started with banks as our primary investors. But based upon our performance and investment strategy, we were able to expand to non-bank investors in 2004, with our first public fund investment.
Soon after that, we expanded to foundations. We started at 100% bank investors and we are down to less than 50% today. We’ve seen growth both from the public sector, from the endowment and foundation sector, and most recently from the corporate sector.
We have an excellent track record with clients not only making a first investment, but then adding to those investments.”
The RBC Global Asset Management executive describes his investment “sweet spot”:
“Michael Porter, a guru on competitive advantage, recognized specific competitive advantages in many low- and moderate-income communities for business formation, e.g., close proximity to anchor institutions such as hospitals and higher education institutions, proximity to public transportation, as well as rail and highway transportation nodes.
And a potential workforce underutilized and under-tapped. Part of the research of ICIC is to identify how those competitive advantages can support business growth within low-income communities in central cities.
One of the early successes of the research was the study on food shopping. The Stop & Shop that’s located in Grove Hall as well as the one in South Bay, both in Boston, were conceived and inspired by that research.
“…When you took the density of these areas, and the amount of income spent on food buying, that there was actually higher demand for groceries and similar products per square mile than in most suburban locations.
The combination of high density and lack of competition created an opportunity for grocers to enter that market, and take advantage of volume in areas where there wasn’t much competition.
I think that’s the sweet spot of impact investing, when you can find an inefficiency in the market, take advantage of it, and, as a result, provide a well-needed service as well as to actually make a financial return. You’re doing well by doing good.”
The inefficiencies of community investing are targeted by Ron Homer of RBC Global Asset Management:
“…There are a wide variety of government loan programs available to encourage neighborhood development that were being used with success in suburbs but underutilized particularly in lower-income minority communities where the need for increased investments are the greatest.
Many of those programs, in the wake of COVID-19, are expanding. However, often the tools that are available to make loans in underserved areas are mostly being used in areas in which investments were already flowing, so they were supplemental as opposed to essential.
One of the strategies that we provide is to introduce targeting and intentionality in the use of those programs. We create mortgage-backed securities, but the borrowers all make below the area median income, and a high percentage of those borrowers are African Americans, Latino or people of color.
Same thing with bonds issued by housing finance agencies that are specifically targeted to provide affordable housing or affordable homeownership opportunities.
We like the impact of those bonds when targeted to areas most underserved…
We found that the mortgage-backed securities created by loans to low- and moderate-income homebuyers, as well as the rental housing bonds that are provided by housing finance agencies and other government agencies, can provide excess returns compared to comparably rated securities.it’s an opportunity to build more stable communities, both with younger homeowners, many of whom are Black, Latino, and people of color, but also to build more diverse communities.
So it’s a combination of people, which we also think in the long term builds healthier communities.
So, yes, we know that many of the areas that have been most adversely affected by the pandemic have been areas where the homeownership is at the lowest rate and with a lot of overcrowding and substandard living conditions.
We believe that providing more opportunities for people to own homes and to take ownership of their communities is the first step in building stronger and healthier communities.”
Ron Homer of RBC Global Asset Management has an interesting origin story for his participation in community service investments:
“I first got interested in — I guess, at that time it wasn’t called impact investing — in community development as a career in the 1970s. I was born and raised in the Bedford Stuyvesant section of Brooklyn, which from 1940 to 1960 went from 75% white to 85% black.
And just as I was finishing college, Bobby Kennedy, who then was the senator from New York, was running for president. He formed something called Bedford Stuyvesant Restoration Corp.
And I just recently saw a quote from him which has been sort of my guiding principle, where it said that the combination of community action, government and private enterprise — that none of them by themselves could solve the problem, but their combination is the hope for the future.
So we believe that the best strategies combined, both philanthropic, government and private enterprise, and when they’re aligned to help attract the flow of capital into a community, is when you can see real economic development.
I actually spent a day with Sen. Kennedy and his wife, Ethel Kennedy, in a motorcade in April 1968. I was a senior in college. And it was the day that Martin Luther King was assassinated.
During the ride and before King was shot, Sen. Kennedy asked me if he became president, would I come work with him to try to make a difference. I replied with a definite yes.
Unfortunately, Bobby Kennedy was assassinated two months later.
A month later, I went to work as a social worker for the antipoverty program in South Bend, Indiana, which then made me realize that many social problems are intertwined with economic problems, which can best be addressed by expanding economic opportunities.”
Read the full 2,797 word interview with Ron Homer of RBC Global Asset Management, exclusively in the Wall Street Transcript.
Ron Homer
Chief Strategist, Impact Investing
RBC Global Asset Management
(617) 722-4700
www.rbcgam.com
email: ron.homer@rbc.com
Larry, Jasinski, CEO, ReWalk Robotics
German government approval for his products has boosted Larry Jasinski who has served as Chief Executive Officer and as a member of the ReWalk Robotics Ltd. board since February 2012.
From 2005 until 2012, Mr. Jasinski served as the President and Chief Executive Officer of Soteira, Inc., a company engaged in development and commercialization of products used to treat individuals with vertebral compression fractures, which was acquired by Globus Medical in 2012.
From 2001 to 2005, Mr. Jasinski was President and Chief Executive Officer of Cortek, Inc., a company that developed next-generation treatments for degenerative disc disease, which was acquired by Alphatec in 2005.
From 1985 until 2001, Mr. Jasinski served in multiple sales, research and development, and general management roles at Boston Scientific Corporation. Mr. Jasinski holds a B.S. in marketing from Providence College and an MBA from the University of Bridgeport.
In this 2,582 word interview, exclusively in the Wall Street Transcript, Larry Jasinski explains how German government approval will get critically injured patients back on their feet:
“Our main product, which we’re well-known for, is called the ReWalk 6.0. We will create additional generations of that as a product made for personal use in everyday life, whether it be at work, in the community, in your home, or people that do special events.
In the other three product lines we have, the largest one is a soft exosuit, a very small, lightweight system that is driven by cables. We did this in a collaboration agreement with Harvard University and brought it to market just before COVID hit.
It is a device for treating those who have had a stroke, and it helps them relearn the proper gait pathways. It works in terms of being able to walk in a traditional gait pattern, to walk faster, to walk further, and to be healthier.
Those soft exosuits will eventually be a formula for us to provide these wearable robotics for multiple sclerosis, and we hope, for Parkinson’s. We still have to build their data for more applications.
For stroke, we’ve already brought it to market for use in the clinic.
Our next version of the product is a product you’d use at home.
You could use it for a period of therapy, and perhaps longer term for patients who need it for a long cycle of use.”
The robotics products are developing widespread reimbursement and was recently awarded German government approval.
“There’s been extensive effort to develop a reimbursement pathway and positive results.
Our work to build the database — the supporting clinical data, economic data, and quality of life data has grown dramatically along with the user base.
When we first gained FDA clearance, we had a limited number of patients from safety-based studies.
The real-world data from selling and from additional research allowed us to achieve coverage in some major markets, such Germany.
The government issued coverage codes and have since established six full-coverage contracts. So if you’re a German citizen, injured at work through workers’ comp, or injured where you have one of the private payers that have signed contracts, you now can get one of these systems, take it home and live your daily life with it.
For the last year, COVID has slowed training and studies and as we regain access in the future, we’ll become more active.
In the United States, we will use the database that drove VA and German coverage and we have additional data that’s developing.
We applied in late 2019 for a coverage code to be created by the U.S. Centers for Medicare Services — CMS — and code K1007 was issued last summer after the public hearings and it took effect last October.
And we’re now moving towards establishing pricing, the product category and contracts in the United States.
Beyond that, we’re pursuing case by case, which tends to discriminate towards those with the ability to appeal or be most vocal rather than reaching those that can most benefit.
That’s a slow and harder process.
And that’s why these contracts, and the long-term success of them, are so important.”
The German government approval will support 2021 growth.
“Our second half of this year is looking at how much COVID allows us back into the market, which we expect, at the current rate of vaccination that our employees and our customers and our clinics are having, is going to be pretty good.
We’ve done a few things. In the early part of this year and late last year, we did a lot of work to solidify our balance sheet. We’ve done some additional capital raises. We’ve reduced our burn.
We’ve eliminated all of our long-term debt. So we believe we have enough of a runway now to take us to breakeven operations.
We have important milestones that will affect us, including a German Federal Court decision, which may even broaden coverage in Germany if it’s positive. That will occur probably sometime this year.
We need to show year-over-year growth basically, so the market can realize that this insurance is working.
Well, there’s an advantage and a disadvantage to being the first one in an industry, and ReWalk was the first and only company to bring a product to market originally for personal use.
It didn’t have any competitors at that point. We’ve had one other enter the U.S. market, but we are several generations ahead. However, we do see more and more activity.
In the stroke market, we see some fairly good efforts, and one particularly good design with one of our competitors, Ekso Bionics.
I think more competitors actually would help this industry develop. So we would encourage that.
But our expectation is that we’ve been able to lead. We were the first ones to bring the ReWalk, we’re the first ones to develop a soft exosuit, and we’re the really the first group to focus heavily on MS and Parkinson’s.
So I believe we’re going to get to lead it. I hope others join, because that will help push the industry forward in a positive way.
The thing we did most of last year was to build pipeline. We made contact with a lot of veterans who completely qualified for the product, and we got them ready. Despite COVID, we kept our team in place, so we could build a pipeline.
We’ve done that in Germany, we’ve done it in the U.S. with the VA and with workers’ comp patients in particular. So we’re reasonably set up, as COVID opens, to help many of these patients.”
Read the entire interview, including all the details on reimbursement approval by the German government, in this 2,582 word interview, exclusively in the Wall Street Transcript.
Larry Jasinski, CEO, ReWalk Robotics Ltd.
(508) 251-1154
www.rewalk.com
email: contact@rewalk.com
Lori Woods, CEO, Isoray Inc.
Lori Woods is CEO of Isoray and is a member of the board of directors. Ms. Woods has more than 30 years of experience in the medical device technology and health care services industries and is particularly well-known and respected in the brachytherapy community.
Her distinguished career includes her position as a Principal of Medvio, LLC, where she worked with large public and international medical device companies and was also involved in the development of proprietary technologies for the colo-rectal and liver treatment markets.
She has also served as Chief Executive Officer of Pro-Qura, Inc., a privately-owned cancer treatment management company focused on the quality delivery of brachytherapy treatments for prostate cancer.
Ms. Woods’ previous experience also includes her role as Director of Business Development for the Tumor Institute Radiation Oncology Group and the Seattle Prostate Institute (SPI) in Seattle, Washington, an early innovator in prostate brachytherapy treatments.
Ms. Woods’ appointment as CEO marked her return to Isoray after having previously served as Vice President in July 2006, Acting Chief Operating Officer in February 2008, and Chief Operating Officer from February 2009 through January 2010.
In this extensive 4,585 word interview, exclusively in the Wall Street Transcript, Lori Woods opens up on the prospects for Isoray.
“Isoray is a medical technology company and seed brachytherapy innovator.
Brachytherapy is internal radiation therapy and it is a powerful weapon in treating prostate cancer as well as cancers like brain, lung, and head and neck cancer. We have been innovating since about 2004 when we introduced Cesium-131, our proprietary radioactive isotope for internal radiation therapy. We have a strong history of providing focused internal radiation therapy treatment for prostate cancer.
We have also created state-of-the-art personalized products that allow us to provide patients and physicians with very specific treatment for a patient at the time they need treatment.
Recently, the company has been expanding our product and service offerings as we continue innovating in developing new and exciting ways to treat cancer patients.
Isoray holds the distinction of being the world’s sole manufacturer and supplier of Cesium-131, which is our proprietary radioactive isotope that we use in our targeted treatment for cancer.
We’re really excited about this particular isotope, because we believe it has the combination of two things that are really unique and important when you’re using a radioisotope to treat cancer. One is that it has a short half-life. And what that means is that the radiation comes into your body, it treats your cancer, and then it dissipates very quickly and leaves your body, which is a good thing.
You don’t want it to stay in your body too long.
The other part of that is its high energy.
You need to have the right level of energy, so the treatment dosage can actually get in there and kill the cancer.
So, the combination of having a short half-life where it leaves your body quickly and the high energy where it’s getting in there and killing the cancer is really important in what we do.
In short, Cesium-131 internal radiation therapy is able to deliver a targeted treatment dose quickly with precise placement of Cesium-131 seeds, leaving healthy tissues and organs undamaged, and leaving the body quickly so it avoids prolonged radiation exposure. And that’s why we’re so excited about Cesium-131’s important place as a powerful cancer treatment.”
Isoray has greater brachytherapy ambitions.
“…Brachytherapy, or internal radiation therapy, has been around really since the mid-1990s in various forms with other isotopes. Cesium-131 was the last entrant into this market.
Two other isotopes in this market are iodine and palladium. They both have some good properties, but Cesium-131’s entrance into the market was a breakthrough because it has the combination of the two most important treatment features, which is the short half-life and higher energy.
We’re very excited about the impact in treating our core prostate cancer market, where about 80% of our revenue comes from.
But we’re also increasingly growing Cesium-131’s role in the treatment of other cancers including brain, lung, head and neck, and GYN — to name a few…
We have a unique approval. We have a 510(k) clearance to treat any cancer from head to toe that a physician would deem appropriate to treat with Cesium-131. So that is an important advantage.
Where we may need to seek new FDA approvals is as we innovate and if, for example, we were combining Cesium-131 with a new delivery device then we might need regulatory approval.
But we have very broad regulatory approval, as well as reimbursement through Medicare and reimbursement through normal insurance carriers for our Cesium-131 seeds, as they are known.”
Brachytherapy is going to be a big winner for Isoray, according to CEO Lori Woods:
“Brachytherapy has been around for a while and is being increasingly recognized as a potent treatment for prostate cancer and other cancers throughout the body.
Reimbursement levels for brachytherapy suffered from the competition of higher reimbursement for other competing radiation treatments back then, so it wasn’t a level playing field.
Now we have some changes coming up with reimbursements to level the playing field and not give one therapy an advantage by reimbursing it at a higher rate.
But I think it’s important to understand that in addition to the treatment advantages we discussed earlier, another very important advantage of brachytherapy is what I call one-and-done treatment.
A patient goes in to see their doctor and the doctor decides that brachytherapy is the right option for that patient’s cancer. A patient goes to a hospital and usually in an outpatient setting or an ambulatory surgery center and the surgery takes about an hour.
Then, the patient moves into the recovery room for a couple of hours and then is free to go home and go about their day.
This is exciting because the cancer is being treated and in many, many cases cured right then and there. It doesn’t require the patient having to come back for multiple treatments like some other treatment options where you must return repeatedly for treatment.
And that can be day after day after day, or every other day, for a length of time depending on the treatment plan that you have with your physician.
The bottom line is Cesium-131 brachytherapy is very efficient, very effective, and it’s important from a quality-of-life consideration as well because people need to be able to get back to their lives.
And brachytherapy is a fantastic way to do that and in many prostate cancer cases it can cure your cancer.”
Lori Woods, CEO, Isoray, Inc.
(501) 255-1910
www.isoray.com
Harris “Shrub” Kempner, President and Portfolio Manager, Kempner Capital Management
Harris L. “Shrub” Kempner Jr. has been Kempner Capital Management’s President since the firm’s inception in 1982. He is also a Portfolio Manager.
He was President of U.S. National Bancshares and Chief Investment Officer for Frost Bank of Galveston (formerly United States National Bank) from 1969 to 1982.
He received a B.A. from Harvard University in 1961 and an MBA from Stanford University in 1963.
In this 2,995 word interview, exclusively in the Wall Street Transcript, this 60 year veteran of portfolio management details his investing philosophy and his top picks for 2021 and beyond.
“First place, we’re deep value managers. We have a tendency to be always in the value area, and in areas which have been washed out because they’re unpopular by others — so in our terms, deep value.
And secondly, our criteria for success is different than many others.
We are trying to make sure our clients have more money in real terms when they come with us than they did before. And that means our bogey is the compound rate of inflation over time. We’re very long term, expecting to hold individual stocks for three to five years.
And so, if our clients have done better than that, we have met our objectives.
This is easier in a period of time with low inflation. It’s a lot harder in periods of time where inflation is increasing. And we’ve been through all of those.
It has led us to periods of time when our performance is not as good as many others because the markets are not rewarding value stocks.
But we have a very tried-and-true discipline that served us well over this extended period of time and we see no reason to modify it or change it.
So, we treat everybody alike. Nobody is treated differently. Private clients and clients that invest in our mutual funds basically end up with portfolios that look quite similar within three to five years.”
Kempner Capital invests into stocks other portfolio managers are avoiding:
“One of them, interestingly enough, is GM (NYSE:GM), which we think not only is going to have extremely good earnings, but we think because of their move into certain high-growth areas of transport, that they will get a higher p/e multiple than they’re used to. There’s been some of that already. But we think there’s more coming…
Our view is that they’ve been trading as a cyclical company — which is in cars, primarily in transport vehicles generally, and which is going to rise or fall based on the perception of the consumer for those things.
They’ve almost all been internal combustion engines.
What has changed is that they’re still going to be in the same transport areas of cars and trucks and such, but there’s the possibility that they will break new ground with some of their electric and self-driving vehicles in a way that will begin to generate higher growth rates and therefore higher p/e multiples over the next several years.
It is one of the largest holdings we have. And it’s not so much that we’ve invested huge amounts in it. But we think it’s a longer-term hold.
There are a couple of others, some very out-of-favor stocks, like BP (NYSE:BP) and Royal Dutch (NYSE:RDS.A). There are a lot of moving parts, it’s very complicated, and everybody is sort of negative on petroleum.
These guys not only are going to benefit from what we think are going to be much higher petroleum prices over the next year or two, but in addition, they themselves are working into some of the new areas as growth areas for them.
And I just think there’s multiple expansion there that’s pretty substantial coming along.
You give me 10% earnings growth. Going from eight- to 10- or 11-times earnings and you have a very substantial return. You’re being paid a nice dividend while you’re waiting for this to work out.
Note though that all of these are long-term holds in the sense that we and they are certainly contrarian. I mean GM less so now.
But close to everybody is still certain that oil prices will never rise again. However, they’re beginning to change their view on this. And I think the oil companies are both going to have earnings growth and multiple growth as people begin to realize it.”
Kempner Capital is not swayed to negativity on oil and gas companies by the coming electrification of motor vehicles:
“I think the concept that oil demand is going to somehow get frittered away in five or 10 years is nonsense.
Let’s take the world fleet of vehicles. There are roughly 1.2 billion cars and trucks and other kinds of things on the roads and about 5 million of those are electric vehicles now.
The most optimistic projections I’ve seen show that for electric vehicles, they’ll increase twentyfold to 100 million in the fleet by 2030.
But then you have to step back and realize that the overall fleet will grow from about 1.2 billion to 1.5 billion or 1.6 billion according to the same studies.
You’re going to have, let’s say, 1.5 billion. You’re going to have instead of 1.2 billion, 1.4 billion cars and trucks on the road that use oil.
To the extent that transportation in that regard is one of the biggest users of petroleum and petroleum products, that’s not a formula for a fall off in demand for oil.
It’s hard to get there. And so I think that a lot of this is wishful thinking, and the desire for the brokerage community sometimes to hype something new and therefore get people to give them commissions.
I’m really sort of cynical about that whole thing.”
Kempner Capital is also increasing its investment into is the financial sector.
“I think that in general with the banks, not so much the insurance companies, but with the banks, the big ones we own.
Citicorp (NYSE:C) particularly looks terribly cheap just because people are skeptical still that they’re going to have solid earnings growth.
We believe that the progress they were making before new management — and now with this new CEO, Jane Fraser, doing her thing to cut back on some of the not-so-strong commercial lending areas in various countries and bringing that back home — you’re going see much steadier and much better earnings growth.
They aren’t selling even at book value the way all the other banks are.”
Get all the detail and complete top picks from Shrub Kempner of Kempner Capital Management by reading the entire 2,995 word interview, exclusively in the Wall Street Transcript.
John Cole Scott, Chief Investment Officer, Closed-End Fund Advisors.
John Cole Scott, CFS, is Chief Investment Officer of Closed-End Fund Advisors.
Mr. Scott has worked at Closed-End Fund Advisors since 2001. He holds the FINRA 66 License and the Certified Fund Specialist designation (CFS).
He is a graduate of The College of William and Mary and has been quoted and interviewed widely in the financial press, and has presented at conferences and for investment groups on more than 50 occasions.
In 2008 Mr. Scott founded CEFA’s Closed-End Fund Universe, a data service covering all U.S. listed closed-end funds and BDCs. Currently supported by an internal 10-member data and analysis team, the service covers the 600+ ticker universe of CEFs/BDCs/iCEFs. They regularly do consulting and projects for CEF/BDC sponsors, hedge funds and institutional investors.
He is a Portfolio Consultant with over $300MM+ in deposits into a UIT focused on BDCs with a fund sponsor partner. He developed 35 CEF/BDC based indexes: 9 diversified portfolio objective, 9 equity and 15 bond sector.
Mr. Scott is also the Founder & Exec. Chairman of Active Investment Company Alliance (AICA). Mr. Scott is a past board member of The Richmond Association for Business Economics (RABE), and serves as Assistant Treasurer and on the Investment Committee for The New York State Society of The Cincinnati, and board member and Finance & Investment Committees for The William & Mary National Alumni Board.
In this extensive 5,172 word interview, exclusively in the Wall Street Transcript, Mr. Scott details his data driven Closed End Fund investment philosophy and selects some potential examples for investors.
“We have my team at the firm that understands closed-end funds. We have 10 analysts that input the back end. We get data feeds or spreadsheets from some sponsors.
We review SEC filings and press releases and such. Some things are automated, and some things are human only. I would say that, while it’s considered to be a lot of information, we focus heavily on having more granular and a more closed-end-fund-centric data perspective.
It is not looking at a closed-end fund through an open-end fund lens.
Also, BDCs are a hybrid investment structure, blending a closed-end fund with an operating company, but technically speaking, their SEC filings state they are “closed-ended management companies” so they are a 1980 modification to the 1940 Investment Company Act. They still have active management for a diversified portfolio of holdings.
It is generally a listing of common stock that you buy and sell through an exchange like traditional CEFs. It has a very similar flavor and offers investors exposure to investments that are often similar to high-yield bond funds or senior loan funds.”
John Scott is a big advocate of Closed End Fund investing:
“A closed-end fund has an initial public offering when investors buy shares. Capital is raised. A public listing occurs on an exchange with most on the New York Stock Exchange for U.S. investors.
There are some at NASDAQ but, just to put in perspective, there are closed-end funds listed in London, in Toronto and Hong Kong, so it is not a unique to the U.S. investment. The primary difference with closed-end funds is that they have a fixed pool of capital, the capital a fund uses to make the investments.
For a listed fund, which is most of the funds, you have a publicly listed ticker symbol, and the difference between the market price of the fund shares and its net asset value is the discount or premium.
Generally, discounts are far more common than premiums with the 25-year average at around a -4% discount. For example, back in late March of 2020, you could buy funds at -20%, -30%, -40% discounts because people were freaking out.
Because the U.S. closed-end fund market is heavily owned by individual investors, it definitely reflects sentiment and emotional responses. Because individual investors sometimes buy at the worst times and sell at the worse times, sometimes there are opportunistic periods with very attractive discounts.
Examples include Q4 of 2018, with a technical correction, or March of 2020, or with the Great Financial Crisis, or a period energy pullback. We seem to have an event like this every four to five years when closed-end funds dropped -20% plus.
That’s been an above-average time to buy them, but because they generally pay yields of 6% to 8% and much of that is deemed sustainable by many outside investors — like us and others — it’s an attractive source for ongoing cash flow.
Your question might be, “Well, how do they do that JCS?” I would say, there’s really three reasons why they generally yield more. One is they use leverage — 25% average for a blended portfolio, and bond funds can easily be 30% to 40% levered — which means, $1.30, $1.35, or $1.40 of gross exposure will be covered by $1 of net assets.
If they trade at a discount, if you think of $0.10 per share distribution monthly and a $10 net asset value. If you then can buy that for $9, then that yield is bigger.
With many funds offering a discount, you get a higher yield due to discounts. The third reason is because they don’t have to be redeemable daily to shareholders. If you own 1,000 shares of any listed closed-end fund, and you want to sell it, you can trade it just like a stock.
It is an independent relationship from the fund sponsor, so the fund sponsor never has to worry about redemption risk. Just think about March of 2020 as an example, when an open-ended fund might be forced to sell holdings to raise cash for investors redeeming shares.
It is similar but different to an ETF, and an ETF is actually a modification of the open-end fund and they generally act much more like an open-end fund.
The fourth reason is that these funds can technically pay whatever distributions they want, which is why you cannot just look at the headline yield figures.
Funds can pay you back with your principal investment, called return of capital, which isn’t always a bad thing. You could have a $20 fund that pays you $4 a year, that’s 20%, and nobody can be expected to consistently earn $4 on $20.
Sometimes, when some funds are low on capital, they do a rights offering, likely above net asset value and add capital back to the fund to be able to keep paying the $4 moving forward. We stay away from those situations; we seek to avoid destructive return of capital to shareholders.
But at the end of the day, diversified closed-end fund portfolios do have relatively higher yields due to the combined features and policies.”
Get the complete detail and more of John Scott’s recommendations for Closed End Fund investors by reading the entire 5,172 word interview, exclusively in the Wall Street Transcript.
John Cole Scott, CFS
Chief Investment Officer
Closed-End Fund Advisors, Inc.
www.cefadvisors.com
email: jcscott@cefadvisors.com
Andrew Watts, Executive Vice President, CFO, Brown & Brown (NYSE: BRO)
Andrew Watts is executive vice president and chief financial officer at Daytona Beach based Brown & Brown (NYSE:BRO). Earlier, he worked at Thomson Reuters in managing customer relations. He was also a senior vice president at Thomson Financial. Prior to that, he was a co-founder and CFO at Textera.
In this 2,786 word interview, exclusively in the Wall Street Transcript, Mr. Watts details his company’s strategy for navigating through the COVID 19 business wreckage in the insurance sector.
“We are an insurance broker. We are the sixth largest in the world. We’ve been in operation since 1939. We’re based here in Daytona Beach, Florida, but we’ve got operations in 43 different states around the U.S.
We also have operations up in Canada, over in Ireland, the United Kingdom, as well as down in Bermuda.
We primarily focus on property/casualty and employee benefits, as well as personal lines. We have four different divisions within the organization. Our largest is retail, where we come out in a direct sales model to talk with the buyer of insurance.
We also have a national programs division, which is our managing general agent — MGA — division, where we really operate as a virtual insurance company, providing risk solutions to retail brokers, either B&B retail or independents.
Then we have a wholesale division, which is focused on the excess and surplus markets, for higher-risk type assets that need to be insured. We support B&B retail and independents. Finally, we have a specialty services division, which processes workers’ compensation and property claims as well as advocacy claims for Medicare or Social Security set aside. Generally, these businesses are linked to one of our MGAs.”
Daytona Beach certainly was impacted by the Colonial Pipeline extortion that led to long gas lines throughout the southeastern US. Thfule Brown & Brown take on this issue is insightful:
“The topic around cyber exposure, cyber coverage, has been front and center for a lot of organizations over the past few years. We wouldn’t say that it has increased exponentially during COVID.
It was a big topic prior to COVID. The threat actors that are out there, or those individuals or firms or whoever is trying to have some sort of malicious actions or intentions, were there before. They’re here now and they’re going to be here in the future.
If anything, the risk is probably going to increase.
One of the things that has probably challenged some companies is the increase in remote workers. If you had all of your workforce in your building, maybe you were a little more comfortable that you knew how the threat actors might try to get into your infrastructure.
As you have a more deployed workforce, and definitely over the last 12 to 15 months, it is about making sure you’ve got the right level of security on all of your computers, especially if you’ve got people working remotely.
The actual coverage itself is still fairly limited in nature. That’s one of the challenges in the space — knowing how to fully underwrite the exposure without knowing how large it could be. Normally, these policies are fairly prescriptive regarding what is covered.
Will this evolve in the future? Probably, as the collective industry gets a better feel for what the exposures are…
There’s a lot of discussion about this topic. They call them the gig workers. Are they considered an employee of the firm they work for? Are they truly an independent agent?
Historically, the view has been that if you’re an employee of the company, then all the applicable coverages are there.
However, when you’re an independent worker, the relationship has to be evaluated very thoroughly. There’s different scenarios in the marketplace where the employee or contractor line is becoming blurred.
It does require us to have more conversations about what exactly the independent contractors are doing to help ensure we get the proper guidance on coverages and related risks.”
The future strategy of Brown & Brown (NYSE:BRO) will be supportive of the local Daytona Beach economy for years to come:
“We’re going to continue to invest in our capabilities. Our capabilities can be anything from proprietary product, to the teammates that we have as an organization, the niches we are able to serve and our utilization of technology and data.
As a result, we can support a customer at any size in their maturation from a smaller company that’s just getting going to a large multinational.
We feel really good about our company, and that we’re going to be able to continue to make sure that we’ve got great capabilities. We’ve been making a lot of investments in technology over the past few years.
We started with infrastructure and our core operating systems, so we can scale even better. These programs are substantially done and we are seeing the benefits.
From an innovation standpoint, we acquired a business last year called CoverHound. That was really our ability to offer what we call a curated quote.
This ties back to our discussion earlier about technology. We do think there’s a segment of the market that we can support in a more automated fashion than what we do today.
What we’re going to be able to do with this technology is allow a buyer of insurance to go online, provide us with their information, and then we will get quotes for different lines of coverage from multiple insurance carriers and provide this back to the customer in what we call a curated quote.
We think we’ve got something that’s unique and differentiated in the space, and are pleased to have the CoverHound team join the Brown & Brown (NYSE:BRO) team.
We will continue to look for additional areas to invest in as an organization that will help further enhance the overall experience for our customers and make our teammates as efficient and effective as possible.
We will continue to invest in our data and analytics initiatives. We want to ensure we’re utilizing our data to help win more customers, retain more customers and help our customers get the best coverage at the best price.
These are some of the important areas we’re thinking about today and into the future.”
Andrew Watts
Chief Financial Officer & Executive Vice President
Brown & Brown, Inc.
220 South Ridgewood Avenue
Daytona Beach, FL 32114
(386) 252-9601
www.bbinsurance.com
Hessam Nadji, President and CEO, Marcus & Millichap
Hessam Nadji has served as President and Chief Executive Officer of Marcus & Millichap, Inc. since March 2016. He previously served as Senior Executive Vice President and Chief Strategy Officer.
Mr. Nadji joined the company as Vice President of research in 1996 and held various other senior management roles through the years, including Chief Marketing Officer and head of the company’s specialty brokerage divisions.
He played a leading role in the company’s initial public offering in 2013. Mr. Nadji received a B.S. in information management and computer science from City University in Seattle and has over 30 years of experience working in the real estate industry.
A frequent source on behalf of the firm to national business media outlets, including The Wall Street Journal, Investor’s Business Daily, Real Estate Forum, CNBC, Fox Business TV, Bloomberg TV, and numerous commercial real estate publications, Mr. Nadji is a member of the National Multifamily Housing Council executive committee, the Urban Land Institute, the International Council of Shopping Centers and NAIOP.
In this 4,374 word interview, exclusively in the Wall Street Transcript, Hessam Nadji details the strategy for increasing the value of his company for shareholders.
“It just so happens that 2021 marks our 50-year anniversary of the company’s founding in 1971. We are really excited to be celebrating this milestone.
A lot of companies, of course, have been around for a long time, but coming into 2021, our founding principles and reasons behind the company’s inception are still extremely relevant. The pandemic actually proved the significance of the concepts the firm was founded on in 1971, maybe more so than any other event could have.
The market dislocation and the difficulty in executing transactions much of last year illustrated the need for our value-added brokerage model.
So, what were those founding principles? Investment specialization, research, information-sharing, technology and having a managed sales force. The combination was truly ground-breaking.
The company was essentially started because George Marcus, who was a broker at a full-service firm at the time, wanted to specialize in investment brokerage, particularly apartments, a very underserved sector throughout the brokerage community.
In trying to launch a practice for himself as part of a larger full-service company, he found that most of the firm’s focus was on leasing, property management, and areas like construction and development management. Investment sales were part of the service offering, but didn’t have the same infrastructure, policies and focus as the other segments.
It was kind of a sideshow.
In dissecting what it would take to make a market for investment commercial real estate, obviously you have to be able to underwrite the property with the most recent economic and operational data points, comparable rents and prices, so underwriting and expertise were deemed essential.
As importantly, exposing the property to the right group of potential buyers is the foundation of how a value-added broker can maximize the value for the seller, and offer options and opportunities to the buyer. So, unless the information is being shared and there is a specialist understanding the underwriting and the key components of the asset’s operations, you can’t make any of these parts come together effectively.
In 1971, there was no information-sharing on the investment real estate brokerage side. There was no repository of information.
As a result, George Marcus became very frustrated, and decided to dedicate his life and his professional career to creating a platform for the real estate owner who was interested in maximizing returns through solid market information and their value when they were ready to sell.
The largest component of the marketplace at that time, and still today, falls into two categories. Most are private investors who are either high-net-worth individuals, friends and family, small partnerships that buy real estate assets throughout the years and create wealth in a passive way, or they’re entrepreneurial, local traders who buy assets, improve or renovate them, reposition them, and sell them, typically within a two- to four-year period.
Both of those audiences — the passive private investor and active private investor — were completely underserved.
Presently, 83% to 85% of all commercial real estate transactions in the U.S. are priced under $10 million, which is the sweet spot for the private investor, and that price point is where they mostly play.
Institutions, who need scale, have to invest in much larger assets — $20 million, $25 million, $30 million-plus. And so there is this market gap that left the private investor and the middle-market investor very underserved.
Our company was created with the founding principle of investment specialization, so you can dig deep and really become an expert at the local level by property type.
Number two was information-sharing. From the day that George started the company, the policy of sharing information on every listing that every agent had was a mandate, enabling other brokers in the office to expose the listing from their colleague to their potential buyers, and widen the pool of offers.
The whole idea is to generate quality offers from multiple buyers.
The third concept was very different at the time, and still is today, where the company would invest in a professional manager and compensate them as an executive, as a part of management, and not as a broker making commissions.”
Hessam Nadji also describes the personnel supporting this strategy.
“These dedicated managers hire, train and support the sales force, and their compensation is tied to the office’s productivity and growth, not any one deal. George dedicated the company to being a managed sales force that didn’t have player coaches, but professional managers.
We’re fortunate that the vast majority of our managers have been former investment brokers with the firm, so they know the business well and can pass on that knowledge and training.
Another founding principle of the company was around a culture of collaboration, people bringing buyers and sellers together and sharing the fee. And providing value-added services is the next one, which is where research and technology come in. We were the first company to ever have a centralized database.
As early as the late 1970s, the company introduced a mini computer system that had a centralized inventory of investment real estate, because if you’re mandating information sharing, then you have to facilitate that through technology, even back then.
We were very much influenced by the fact that the company was founded just down the street from Hewlett Packard’s (NYSE: HPE) corporate headquarters.
Bill Millichap, in particular, was a pioneer and big believer in technology, so that became part of our DNA. In fact, there’s a story of one of our weekly workshops where we have guest speakers, one of those speakers happened to be Steve Jobs, pitching one of the early generations of Apple (NASDAQ: AAPL) computers in our Palo Alto office.
People always get a kick out of that story.”
Hessam Nadji has recently developed a future strategy that is building from this base.
“In the last three years, one of the key strategies that we implemented was to attract a lot of existing senior brokers from other brands or independent shops that would bring coverage in this institutional arena that we didn’t have. We started an acquisition strategy that really augmented our financing capability and larger deal brokerage presence in key markets like Seattle, Canada, and South Florida.
Those acquisitions, having been completed over the past three years, also added a lot of value in the fourth quarter, because we could help institutions and we could help the private investor sell, finance and acquire assets.
From a market perspective, you’re right, we’re getting very close to earnings, but it’s common knowledge that the market continues to open up.”
Get the full information on the Marcus & Millichap strategy for investors by reading the entire 4,374 word interview with Hessam Nadji, exclusively in the Wall Street Transcript.
David Toti, Colliers Securities, Senior Research Analyst, REITs
David Toti joined Colliers Securities as Senior Research Analyst in January 2021 to expand coverage in the REIT space. A long-time real estate professional, Mr. Toti spent nearly 20 years on sell-side REIT equity research teams for a variety of firms, including Lehman Brothers, Citi, FBR, Cantor Fitzgerald and BB&T.
Before Wall Street, David Toti was a design project manager for a leading architectural design firm. Mr. Toti is a graduate of Syracuse University, and also holds a Master’s in Business Administration in Real Estate from the University of Wisconsin-Madison.
In this 2,978 word interview, exclusively in the Wall Street Transcript, David Toti details his real estate investing methodology and reveals some top portfolio picks for 2021.
“The securities firm is a relatively small division of Colliers International, and Colliers is largely, as you said, a commercial real estate brokerage.
There are many other businesses wrapped around that — a variety of related services, management, valuation, appraisal, and so forth. The securities business, which is based in Minneapolis, is relatively small; there are probably a dozen analysts, who are largely tech and health care focused.
Real estate was an important mandate for the firm, given our ability to stitch some of the various Colliers units to the securities business, and vice versa — to begin to interconnect the businesses and the verticals and develop synergies, if you will.
That’s a specific experience that I’ve had in the past at a prior firm, which is why I believe Colliers reached out to me, and also why I accepted the role. I thought it was an interesting mandate and a rare opportunity.
For a REIT analyst, it’s basically like having a gold mine of data in your pocket, because of the sheer volume, breadth and depth of market data and market intelligence.
We effectively have eyes and ears all over the world in different markets and different asset classes. So for me, instead of going through the usual data vendors that everyone uses, we have an incredible amount of market knowledge that helps us produce more accurate, more timely, and more proprietary real estate research.
I have also long focused on an unusual quant approach within the space. The concepts, experience and implementation ability are assets I brought to Colliers; when married to the Colliers platform, their value will be materially amplified.
The bundle of predictive valuation models essentially run off of large pools of market data to forecast real estate asset values, market conditions and REIT values in the context of an assumed macroeconomic environment.
I’m excited to weave all of these things together. It is always a challenge to produce a unique product in the space, and as a result, there’s a lot of commoditized “me-too” research proliferating.
It’s hard to develop a product for clients that they haven’t seen, that they want but can’t source, and I struggled for a long time to discover a performance-based niche with a supply and demand imbalance.
To add the Colliers brand and Colliers resources to the process will produce a truly powerful product, in theory, so I am quite excited about what’s coming over the next couple of months.”
David Toti is not as sanguine about the real estate stock sector as some of his peers:
“…Going into the pandemic, many office and retail assets were highly occupied, and priced to perfection — many assets are trading with remarkable prices and ultra low cap rates, historically low cap rates, and basically no risk premium — and lo and behold, risk appears.
So the value impact to those asset classes is yet to be determined. Transaction activity has been very limited as well, so one can’t point to that, either.
But I think for the short lease — self-storage, apartments, some segments of health care — the recovery is appearing by way of rents, which have renewed and are pricing on a new rate basis.
Overall, portfolio occupancies have remained stable. A few tricky issues to watch within the REIT space might include expense pressure, as the conversation will not move off of inflation and cost inflation.
The REITs are seeing expenses grow anywhere from 5% to 8%. I’ve never seen that in my 20 years covering the space, these kinds of remarkable growth rates, and they don’t really have that much pricing power at the top line yet.
So it’s to be determined if they can really fight inflation in the near term. I suspect they will, especially for the shorter lease REITs, where there are only limited supply issues.
The REITs are ultimately rate-sensitive instruments, first and foremost, and if we have the U.S. Treasury bouncing up at a historically rapid pace that could drive up borrowing costs, coupled with inflationary pressures that could erode margins — I remain a little cautious at the margins.
It’s nice to paint a happy story and say, “The world’s coming back, everything’s getting back to normal,” but we don’t know the effects of all this liquidity, all this government stimulus, the rapid rise in the Treasury, and the sudden appearance of inflation, which is only just beginning to play out.
So there are a lot of question marks around interest rates and the REITs especially, because generally as rates move up, the REITs — especially the longer leases — typically move inversely to those rates, and they could lose value as those rates move up, so that’s what we watch for.”
This leads David Toti to just a handful of stock recommendations:
“Camden Property Trust (NYSE:CPT) is one of our recommendations. IRT (NYSE:IRT) is another one that we like.
As well, a couple of health care names that we point to, and those typically have higher exposure to private pay segments, because we think there will be more growth as things return to normal there.
So we like the shorter leases, we like when there’s pricing power visible, we like the non-core markets, the Sunbelts and Texas and so forth.
It’s a trade that’s been working for a while, but I don’t think there’s any reason to get off of it at the moment, it’s just a matter of finding a stock that’s palatable from a pricing perspective.
A lot of these stocks are bid up pretty high, so the thesis might sound great, but then when you look at the pricing, you say, “Well, the upside is somewhat limited.”
Get the complete background on these picks and more by reading the entire 2,978 word interview with David Toti, exclusively in the Wall Street Transcript.
David Toti
Senior Research Analyst
Colliers Securities
(612) 376-4000
www.colliers.com
email: david.toti@colliers.com
