Floris van Dijkum, Real Estate Investing, Compass Point Research and Trading
Floris van Dijkum joined Compass Point Research and Trading, LLC in June 2019, bringing 30+ years of real estate investment banking experience. and covers malls, shopping centers and hotels including the Simon Property Group (NYSE: SPG).
Prior to joining Compass Point, he started the REIT research effort at Boenning & Scattergood. Before that, he started the global REIT investment platform at BlackRock (NYSE: BLK), where he served as COO and was responsible for a quarter of the U.S. portfolio.
Prior to BlackRock, Mr. van Dijkum worked in Europe where he served as Chief Investment Officer for Speymill Property in London, head of real estate banking at NIBC in the Netherlands, partner at Forum Partners, head of Lehman Brothers European real estate banking in London, and Senior European Real Estate Research Analyst at Morgan Stanley in London.
Before Europe, Mr. van Dijkum worked at Salomon Brothers in New York covering REITs, helping the team become top ranked. Mr. van Dijkum started his real estate career at LaSalle Partners in Chicago and London. He graduated with a B.A. in history and philosophy from the University of Virginia.
In this extensive 4,695 word interview, only in the Wall Street Transcript, Mr. van Dijkum details his top picks and the fundamental research that supports his portfolio recommendations.
“One of the things that probably sets me apart from most sell-side analysts is my focus on asset quality. I have probably visited most of the A-rated malls in the country; I’ve visited most of the most valuable shopping centers that are owned by REITs in the country; I’ve visited a fair amount of hotels, but probably not as many as I have seen in the retail space.
I believe it’s important to understand the real estate quality, in order to understand how the assets are positioned in the local markets, and so hopefully we do a more thorough and more fundamental job on that.
Our valuation work is very much bottom-up driven, so we value every single asset held by a REIT. We look at multiple valuation metrics but tend to focus most on net asset value (NAV), which in shorthand is the private market value of the assets less the net debt.
The private market value is typically expressed by applying a cap rate to net operating income — NOI — or property operating earnings.
In order to come up with a warranted cap rate to value the REIT overall, we aggregate the individual cap rates to come up with what the appropriate, warranted cap rate is for the company.
So it’s more granular, more detailed. Hopefully that means that we are slightly more accurate, and certainly more thought-provoking.
Hopefully we have a pretty thorough understanding of the assets of the companies, and I’ve known some of these management teams for a very, very long time. David Simon was running Simon (NYSE:SPG) when I covered SPG in the mid-1990s.
At Macerich (NYSE:MAC), the current CEO was the CFO back when the company went public. So I’ve got a fair amount of background information and knowledge and personal relationships, and I think that’s helpful to understand each of these companies. Capital allocation is a key way for management teams to create value, and investors pretty quickly understand who are good capital allocators.”
The SPG pick is one of Mr. van Dijkum’s favorites and he defends it vigorously:
“There are some investors who don’t understand why Simon would buy a retailer; is the company going away from its core competency?
But mall landlords know retailers better than anybody as they see the traffic and sales data. Simon should understand the retail business really well.
It does not necessarily know how to run these retailers, so Simon has partnered with ABG, or Authentic Brands Group, who basically does the purchasing and supply chain management.
ABG owns over 50 brands and has over $14 billion of sales in those brands, and Simon owns 6.8% of ABG as well.
And if you look at that, there are a lot of synergies. Now, Simon bought into Aeropostale, Forever 21, and Brooks Brothers. The biggest one probably is going to be J.C. Penney where it partnered with Brookfield and ABG now also owns 16.7%.
Simon got a lot of flak at the time for that purchase — investors asked why are you buying a department store? But a department store typically controls lots of its real estate, and so we believe that the deal makes sense purely from the real estate perspective. The dirt that was underneath those J.C. Penney boxes represented the vast majority of the value in the J.C. Penney business, based on our analysis.
For example, in A++ rated Fashion Valley in San Diego, an outdoor format, high end, super profitable. What is a leasehold J.C. Penney store doing there? That store’s higher and best use is probably something else. Simon could even think about putting apartments there, because AvalonBay (NYSE:AVB) built right across the street from them and has done very well. San Diego remains a strong market and with a lot of housing demand, and housing prices are very, very strong in Southern California.
Similarly, the land underneath A++ rated Roosevelt Field on Long island was a leasehold by J.C. Penney and would be important to control. Through long-term ground leases or outright ownership, J.C. Penney controlled strategic space at several valuable Simon malls, and now the company should have a say in what happens there.
So, as we think about these retailer investments, we think there are lots of synergies. If you look at some of the earliest investments, Simon and its partners have actually managed to turn loss-making companies around. Aeropostale was loss-making when Simon bought the company, and I think it’s very comfortably profitable today.
And so, if Simon manages to do that with some of these other ones, I think those investments are probably going to be very profitable — maybe Aeropostale becomes the first retailer bought by its SPAC. That’s certainly what the investors appear to be expecting, but perhaps it’s ABG that gets bought by the SPAC. And again, the SPAC offers another way to monetize some of Simon’s retailer investments, which are currently getting almost zero value in most investors’ minds.”
To get all the top real estate stock picks from Floris van Dijkum including his strip mall favorites, read the entire 4,695 word interview, only in the Wall Street Transcript.
Floris van Dijkum
Managing Director
Compass Point Research & Trading, LLC
(646) 757.2621
www.compasspointllc.com
email: fvandijkum@compasspointllc.com
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