Many of the stocks in the portfolio are priced at what Winer considers significant discounts to any reasonable valuations. "I'm not sure if I'm getting in at the lowest stock prices, but I do know that there are some compelling values out there for some great companies, and I'm willing to wait things out until stock prices catch up," he says. With his top ten holdings accounting for 55% of assets and a focused portfolio of 38 stocks, he is also willing to invest decisively in companies he likes and hang on to them, often for several years. Two analysts assist him in his evaluations.
In addition to its foreign leanings, the fund's emphasis on real estate operating companies, alongside REITs, sets it apart from its competitors. Like REITs, REOCs are traded on major stock exchanges. But REITs are required to pay 90% of their cash flows in dividends, while REOCs have no such restriction and can plow the money back into their businesses. About 60% of the fund's assets are in REOCs, with the rest in REITs, home-builder stocks and cash. With less emphasis on dividends, the fund has a growthier, more tax-friendly flavor than a more traditional pure REIT fund that has generous payouts, and it may be better suited for taxable accounts than many of its peers.
Winer likes the structure because companies that reinvest cash flows in the business rather than pay dividends can expand without relying on hefty doses of outside capital, which is particularly important in an environment of tight credit. While the recent global credit crunch has had a minimal impact on interest rates, it has made a dramatic dent in the ability of real estate companies to obtain financing. The lending slowdown in commercial property transactions has forced many borrowers to seek financing from "portfolio lenders" such as insurance companies and pension funds, which tend to have more conservative underwriting standards.
Because of their strong financial positions, the well-capitalized real estate companies the fund invests in are able to use their financial muscle to pick up properties at distressed prices even in an environment of tight credit, Winer says. Forest City Enterprises, the fund's largest holding at nearly 11% of assets, recently acquired 2,500 residential lots in San Antonio for about 25% of what the seller had paid three years ago. A holding since the fund's inception, Forest City has a strong foothold in markets with high barriers to entry such as New York, Boston and Washington, D.C.
Winer recently increased the fund's position in another longtime holding, St. Joe Company. St. Joe started out as a paper producer back in the 1930s, and acquired huge tracts of forestland in the Florida Panhandle. Ten years ago, new management sold off noncore assets, including the company's paper mill and railroad unit, to focus on maximizing the value of its land. Today, it owns nearly 800,000 debt-free acres. Although Florida's real estate market has taken a severe hit, Winer says the company has a stronghold in the region's land market and is well-positioned to take advantage of opportunities that arise over the next 50 years.
More recent portfolio positions include Cousins Properties, which the fund acquired at a substantial discount to Winer's conservative estimate of net asset value. The Atlanta-based REIT develops and owns commercial and residential properties, mainly in the Southeastern U.S., and has a 45-year track record of acquiring and developing real estate. Its portfolio includes office, retail and industrial properties, as well as a large pipeline of retail, industrial, office and residential properties.
