David Auerbach

Kind of offended me. But I'd also realized how right she was. Because again, Dallas, Texas, you don't think of retrading desks and then, huge Wall Street opportunities like a New York mindset. And I was there for a long time. I got to watch the reed industry grow up. All these new companies come public. All these new investors come into the fold. All these new sectors that came out. It was just a very different landscape than what we saw today. After Green Street went toward what I call a New York trader's philosophy, where it was sales traders, head trader executing trades. And I lost the ability to basically push the buttons, which is what I always wanted to do. I was let go. And I landed in

Dallas with a firm at the time that was very well known in creation and seeding of ETFs, rebalancing and trading. And a lot of folks may know the firm. It was called Esposito Securities. When I was at Esposito for several years, almost like my time at Green Street, I got to watch the ETF industry grow up. So many new issuers come out. So many new thematic type funds that came to the market. And to really be sitting, in the action, working with a lot of these new issuers that at the time, weren't well known that today are household names in the industry. It was a fascinating business at the time. And I really learned a lot. Got into a disagreement with the boss man last and then

Gave my resignation in 2018. COVID hits. And I was working with a broker dealer doing a lot of illiquid securities, REITs, closed end funds, MLPs, BDCs, preferred stocks, new issues, just stuff that not your typical trader would want to handle. And during COVID, I got a phone call and it was talking to the team saying, hey, you're really well connected in the world of REITs. We're looking to launch a REIT ETF. Would you like to be involved in this? And it wound up, launching a very thematic residential REIT ETF, which led to a second fund that was kind of like a private REIT spinoff looking, but made up of publicly traded REITs. This was back when the non-traded REITs were gaining redemptions and investors couldn't get out. We were trying to

Provide a wrapper to allow investors to get into that. I rang the closing bell on the Nasdaq in July of 23 to celebrate the launch of that ETF and was let go a week later. And in that time that I was on the beach for a couple of weeks, I was doing consulting for a little bit of a, for another REIT. And I got to ring the closing bell in the New York Stock Exchange on the podium within a couple of weeks of the Nasdaq, which was kind of a cool experience. But a buddy of mine called me up and he's like, hey, I love what you do. You're so active on social. You're such a great storyteller. Why don't you keep doing that? But come do it for me. And, it really didn't take much twisting of

My arm. When I joined up with Hoya in September of 23, we had around $75 million under management. Here we are. Fast forward a couple of years later, we're around over 135, $140-ish million across our two funds. And it's great. It's still doing all the fun things that I've gotten to do my whole career.

Tell me that is the boss, also known as my wife. But even then, she knows that if I'm not at Fish or if I'm not at my summer camp in Wisconsin with my group of friends, chances are that, there's something else going on or I'm sitting here at the desk focused on REITs.

Company level, his quality of research really started to grow up. More importantly, it was the visual approach, the charts, the graphs, the stories that jump out off that page. he was able to kind of build this niche that really was infant stages of Seeking Alpha, again, a decade ago. So through that, as he built up a subscriber base, a follower base, they reached out to him and said, hey, this is great. Why don't you start launching some ETS? And this is right when COVID was happening, that he launched the first housing ETF, homes, did very well during COVID, gave it back after COVID. And then through that launch, through that first year or two, the clients were like, wow, this is great. Boy, that's something

With more income. And that led to the growth of the birth of the second fund, RIET, which we'll talk to, talk about. And that's really kind of how to fully play the REIT sector. But it's funny, because I tell him he's better behind the screen than in front of the screen. You sit there, write the research, cover the companies, let's put the stuff that's out there and educate. And then we can figure out how to make up the rap or how to tell the story and get it in front of

Frankly, in four different places. The small caps, the mid caps, the mortgage REITs, and the REIT preferred stocks. So because of the unique focus of basically going, instead of it being VNQ, kind of going QNV upside down, we're weighting it really more towards, again, the small and mids, the mortgage REITs, the preferreds, and we pay a monthly dividend that's currently annualized over 10%.

Half percent of a weighting. So, and our hope is the majority of the REITs would raise the dividends throughout the year that would offset that company cutting their dividend. one other unique way, again, correct me if I'm wrong, I still think we're the only REIT ETF that's on the market that combines both common and preferred stocks. So we have a 10% weighting or one third of the 100 names in our portfolio that are liquid REIT preferred stocks. The REIT preferred market is a whole different animal on itself. And so the key is they have to be liquid because they have, some of those have very wide spreads that you can lose that percent, 2% very quickly. But that exposure to the

Preferreds adds a couple of percent of yield to the bottom line. So I had this conversation yesterday. Our focus really kind of plays like the NCAA basketball tournament, blast in, first out type of situation. So really for us, it's the question of the five to 10 names of the top or bottom range of going in, cutting off, which are those that we really need to look at closely? Because again, the guys that are toward that top of that portfolio aren't going anywhere, but it's the ones that may be going through some issues. How do we replace it effectively to cover again, the geography, the sector, the yield, the story?

Dallas, Texas, but I can't affordably live in Dallas, Texas. And I'm like, that's not true. If this is Dallas, you're just going to live out here. It's the same thing like in New York. You can't live in New York city. You're going to live a train ride away. And as I'd like to say, until we see the home builders deliver a light ish product instead of a 400, a $500,000 delivery, it's a $300,000 delivery until we see manufactured housing becoming more respected and a well-known that's not trailer park trash and had that old reputation. Let's say, let's, let's see how that goes. Remember you can buy a manufactured house on Amazon. Did you know that that's kind of

The rental-ish players are always going to be in demand. And in fact, more importantly, I think you're going to see more of this rent to own type story come into play where you live in a property for five years, you've earned up enough money to pay for that down payment and take over the note from that landlord. And then you're responsible for paying the mortgage over the next 30 years or

Kind of increasing. The 10-year treasury right at this moment in our conversation is at 4.212. I like to say that 4% is the magic number. If the 10-year goes below 4, that benefits REITs. As it's above 4, REITs are kind of out of favor, looking at REITs versus fixed income. So that's a stigma. But before the call, we were talking about our respective football teams. And I ran off a stat with you about Mike Tomlin, who just recently left the Steelers, that going back to 2007, over 130 REITs had basically gone away and 110-plus REITs had come public. In the past quarter or four months or so, 17 different REITs have merged or basically figured out strategic alternatives.

It's a momentum-ish type of sector that when people start getting on, they get on hard. And when they get off, when they get off the train, they get off in mass. But it's also like M&A. When one guy starts an M&A transaction, next thing 10 other companies are in play. The reason being, if you're a private equity guy, it's cheaper for me to go out and buy an existing platform of 100 properties than me to go out and build 100 properties in today's environment. The opportunity is that a lot of these REITs are trading at discounts to their net asset value. Meaning, a perfect example of this is Cohen and Steers, which is a very well-known real estate investor, just did an interview in Barron's this week. They picked two very well-known names,

Digital realty and well-tower. But the third one got me excited because I used it in all my conversations. And the company was Empire State Realty Trust. They own the Empire State Building. Did you know that you can buy the Empire State Building for $6.50 a share right now? Empire State is trading at $6.50. Now, I'm not an analyst that has a model in front of me, and I can't use the word guarantee and all that stuff. But wouldn't you think the Empire State Building is worth more than $6 a share, the most famous office building in the world? So if somebody is able to buy all of these great properties at $10 a share, $11 a share, whatever it is, that's value. That's potential income. By the way, mentioning, say, REITs are a dividend story. When I

Think about REITs, anything that happens to the stock price is the extra cherry on top of the sundae. We focus on the income side of it. People neglect to remember that not all REITs are high yield, as you stated yourself. The top 10 REITs that make up most of the passive REIT ETFs that are out there, they're like 2% yield, 3% yield. So you're really not getting that much smash for the investment is how I feel. So let's say the most famous REIT that's out there is called Realty Income. The ticker is the letter O. They're known as the monthly dividend company. And they paid a monthly dividend for a long, long time. And a person could be like, well, I only made 5% return on Realty

Income on their stock price in the past couple of years. And I say, yeah, but you also forgot about the $2, $3 a share that they paid you in dividends in your pocket. You don't think about that. So that's why I like to say anything that happens with the stock price is an extra bonus. As investors who own REITs, you should focus on the income that they pay out to you. By the way, simple definition, a REIT is a tax structure. That's all it is. The laws of the tax structure dictate that the REIT passes all of that net income, the profits and stuff that they earn back to the shareholder in the forms of dividends. So that's why the management teams own so much stock

Because when they raise their dividend a penny, a penny over a year, that means their quarterly bonus just went up by a penny times X million number of shares. They want to see it do just as well as grandma and grandpa who live in the villages. Yeah. So you publish the REIT beat,

Ballast of the ship. It's the tortoise and the tourist and the hair of your portfolio. If you want risk in the world of REITs, you go out and buy a hotel REIT because that's a one night contract. The next step up is you go out and buy an apartment REIT because that's a one year contract. But an office lease is typically five to 10 years. The Starbucks lease at the shopping center, five to 10 years. Long-term leases that are in place with set rent bumps tied to CPI or set rent escalators, whatever it is. One more. There's a REIT out there that focuses on ground leases. They own the land on which the property, the building above is in place. That lease term is 99 years. So if you own, if your name is VG Properties and you own the land on which the MGM

Grand sits on hypothetically, do you care about the day-to-day headlines that we see in the news? No. People talk about the death of office as an example. Office only represents four or five percent of the portfolio weightings these days across all these sectors, but they get 90 percent of the headline attention that's out there. So I just feel like REITs have this misconception that they're, oh, they're all high yielding. Oh, they're all interest rate sensitive. I disagree with that. There is quality out there in the small and mid cap space. There is quality out there, frankly, in the mortgage REIT space. And for me to say something like that, who grew up at Green Street, that was always, frankly, anti-mortgage REITs. They shunned on the sector. It kind of tells you how

Car down the road? And it's the same thing in these ETFs. You need to look beyond the top 10 holdings and see what's out there. it's funny. I saw an article today that was talking about one of those big funds that's out there. And they said, did you know that these top three names represent 23% weighting of the portfolio? In the world of REITs, to have three names representing almost a quarter of the weight, that's a lot of exposure to it on something that isn't paying a lot of yield. So that's why I think it's important to lift up the hood of the car because there's great sectors, there's great subsectors, there's sure, there's like every other sector that's on Wall Street, there's a couple of bad apples. When I talk about the world of REITs, I always use the same analogy.

The world of REITs is like you're graduating class of high school. You have the valedictorian, the salutatorian, the REITs and the S&P 500, the dividend champions. You have the REITs in the bottom 10%, the bullies, the troublemakers, the kids in detention, the over-levered REITs, the guys that cut their dividend. It's the middle part of the curve, the students that didn't get in trouble, that nobody knew who they were, just like this 150 of these REITs that make up the middle part of the curve, that people don't know what it is that they do. And there's great stories that are out there that people don't realize. I was just at that property yesterday, and that's a REIT? I had no idea. That's what we get excited about, is educating these great stories that are out there that people

Those opportunities exist. I want to give credit. A good example is a guy named Kevin Kelly, who several years ago launched with Pacer, INDS, SRVR, a couple of these REIT thematic ETFs when it didn't exist back then. First mover advantage, that's, again, a Warren Buffett philosophy. The fact that they were thinking so far ahead, I salute those guys for doing it. So there's some great stories that are out there that just never get the focus on because, again, people just say, I own VNQ. Set it and forget it. I don't have to worry about it. Whereas, with good management, guys that understand the sector can find the alpha and the good stories that are out there that don't get the time or attention. I think that's kind of why my last venture didn't

Work out so well, because when you only have $5 or $10 million under management, it's very difficult to get a voice in front of that advisor when Vanguard, who has three basis points to go out and buy VNQ or whatever it is, is going to win that trade 95 times out of 100. That's the hardest part, I think, for the ETF guys, is when you're small, it doesn't matter how good your team is, how great your research is, what kind of performance numbers you're putting up. It's how much money do you have? What's your expense ratio? And not really looking at the story.

ETFs are not for you, that's okay as well. Reach out to us so we can help you find that good REIT ETF that excites you, or frankly, the good individual company that's out there. Let us help make those interests to those management teams. We represent the industry so that all of your clients and investors can have that income exposure that they should have in their portfolios.