Predictable Dividends a Feature of 'Elite REITs'
01/03/2013 | by Allen Kenney

Matt Werner, portfolio manager with Chilton Capital Management, joined for a video interview at REITWorld 2012: NAREIT's Annual Convention for All Things REIT at the Manchester Grand Hyatt in San Diego.

Chilton Capital Management is a registered investment advisor (RIA) based in Houston. The firm's core business is providing investment advisory and trust services to private clients, family offices, endowments, foundations, retirement plans and trusts.

Werner discussed his company's views on what distinguishes "elite" REITs.

"At our firm, we classify each REIT into a different category based on risk. Several of the REITs fall into the blue chip category," said Chilton, who pointed out that the firm then further separated out the "best-quality" REITs from that group.

Some of the factors of the elite companies included the predictability of their dividends, flexibility in their balance sheets and above-average same-store net operating income (SSNOI) growth for a sustained period. Chilton also assesses a management team's track record of capital allocation.

Werner offered up some of the factors that he's tracking in the current REIT market.

"What we hear from investors and potential clients are worries about valuation. REITs have run up a lot, and people want to know if they're going to keep going up," he said. "I like to point to current spreads. We're still sitting at an above-average number there, as well as implied cap rate spread."

Werner also discussed risk management with REITs.

"We have several risk-management tools in place. We don't let a position get to more than 10 percent of a portfolio. We like to diversify both geographically and by sector," he said. "We like to classify each REIT according to risk, so we maintain a certain range in terms of core, value-add and opportunistic. Additionally, we use cash in times when things become overvalued to balance the portfolio in case there is a downside."